Independent oil refinery Dongming has been granted a licence to import crude oil. The refinery, located in China’s Shandong province, will be allowed to bring in 7.5 million tonnes per year under the licence.
The significance of this move is that the independent oil refineries have been trying for years to get import licences, and for years have been rebuffed by Beijing. For as long as I can remember, they have only ever been allowed to import about 1.8 million tonnes between them. The approval comes amid rumours that China’s oil majors are trying to stamp out the small independent refineries. Could this be the first of many crude oil import licences? We will watch and let you know.
The refinery produces a petcoke which is quite good for anodes, with sulphur at about 2.5%. At full operating capacity they can produce as much as 70,000t of petcoke per month. Provided nothing changes because of this approval to source their own crude, that will be a nice little boost to anode coke supplies, which have been getting progressively tighter.
Aluminium industry Icon Dick Evans has been appointed chairman of Noranda Aluminum, replacing Bill Brooks.
Dick was the man in charge at Alcan from 2005 to 2007, and was on the other side of the table when Rio Tinto negotiated the purchase of the Canadian company. Dick then went on to be the first CEO of the new Rio Tinto Alcan.
I interviewed Dick in January 2013 for this blog. It is interesting to look back at what Dick said then. His assessments were spot on. In today’s aluminium world, when we are dealing with so much metal leaking from China, one could argue that it’s not unlike 25 years ago when Russian metal was flooding the market. Dick’s view about that was that the industry worked its way through the crisis.
Dick has been a director of Noranda since 2010.
Employees of Fushun Aluminium in Liaoning province have alleged that salaries and compensation they are owed has gone missing.
The company, a downstream producer independent of the smelter of the same name owned by Chalco, went into bankruptcy in 2010. As a result, many employees were forced to give up their jobs and were re-hired on a contract basis. At the time and according to the claims by the employees, they were promised compensation for their loss of jobs and salaries. The promise hinged on a government bail out of RMB1 billion.
When the bail out came, some 3600 employees – all of them still on permanent employment status – were paid their overdue compensation. But the remaining 5000 employees say they received nothing. According to these workers, some RMB 500 million, about half of the bail out money, went missing.
These employees have been waging a media war ever since, trying to attract attention for their case. They allege that the local government SASAC, the body charged with overseeing State Owned Enterprises at the local level, were part of the fraud. The workers claim they have a recording of a SASAC employee admitting that fraud took place, but refusing to say where the money went.
Neither Fushun Aluminium nor the Liaoning SASAC office have commented on the claims.
For the record, Chalco owns Fushun aluminium smelter, but these claims are all to do with Fushun Aluminium, which is separate company not involved with Chalco. Liaoning province is in China’s north eastern corner.
Under Chinese Labour laws, employees can only claim compensation or overdue salaries if they make an individual case. The law forbids employees from forming a group (read “union”) to make their claims.
China recently announced a raft of projects and plans that virtually replicated the 2009 stimulus package, except that this time around, some of the projects are in surrounding countries, or are dressed up to look like visionary objectives. Spending money on facilities for the Winter Olympics in Beijing seems a little pre-emptive, since the city has not yet been awarded the Games, while the Jing-Jin megacity is just plain crazy.
One aspect of 2009 will not be replicated however. Last time around, provinces had to chip in to the RMB 4 trillion package in order to gain projects for their regions. The result was a blow out in debt, which some estimates put to be between 200% and 250% of GDP.
This time, the government is falling back to the strategy made famous by Danny DeVito in the 1991 comedy “Other People’s Money.”
Reuters today reported that the National Development and Reform Commission (NDRC) had invited private equity to sign up for any of 1,000 projects that will account for almost RMB 2 trillion. The projects are in areas such as transport, water conservation, and social services. They range from a hospital in Xinjiang in China’s far northwest, to some subway lines in Hangzhou in China’s east.
Private equity will be able to recoup their investment by operating the asset once it is built. The NDRC announcement did not specify if foreign capital would be allowed to take part.
The Reuters story did not mention a Plan B – what happens if private investors don’t chip in enough? Most likely Beijing will step in to fill any gaps in funding, but only after extracting as much as they can from their own citizens.
At the base of all the talk of Chinese semis exports, government subsidies and sluggish prices there is one core truth. New Chinese metal units keep on coming.
Consider what is in store in the next few weeks alone:
- Xinfa’s smelter in Xinjiang province will start rolling out their next phase of capacity. They will bring another 92 cells on line, each running at 400KA, and by August when this rollout is completed, the smelter will hit 1.9 million tonnes capacity.
- East Hope has a similar story, with another 300KT coming on line in the next few weeks, and bringing their new plant to 1.2 million tonnes. They have another 600KT due to be finished construction by the end of this year, with rollout commencing at the start of 2016.
- Jinlian is rolling out 90 cells in the next 2-3 weeks, for an additional 100KT, and another 90 in July.
We estimate there are at least 10 plants due for completing construction in 2015.
It’s worth looking at the Xinfa smelter in a global context. The aluminium world usually points to the EMAL smelter in the Middle East as being the biggest single site smelter in the world. It runs to 1.35 million tonnes. Xinfa will be around 50% bigger than EMAL when it is finished in a couple of months.
But the new Jinjiang smelter in Inner Mongolia trumps even the Xinfa plant. It will have a total capacity of 3.0 million tonnes when it is completed. That’s one seriously big plant!
AZ China publishes a monthly Pipeline report, which details all these projects. Contact me if you are interested in subscribing.
China produced almost 2.6 million tonnes of aluminium in April, according to the International Aluminium Institute. That puts China at a daily rate of 86,200 tonnes per day for April, compared to 78,700 tonnes in January. So China’s aluminium production has risen almost 10% so far this year.
In contrast, the Rest of the World (RoW) has gone from 71,000 tonnes per day in January to 71,500 tpd in April. Even this tiny increase is a little surprising in an environment where companies like Alcoa and Rusal have been cutting capacity, but countries like Malaysia and India have been increasing output while others cut back.
The net result is that China is now nudging 55% of global aluminium production. There’s few other global commodities where one country dominates global production, and it’s lucky for a balanced market market that China consumes almost as much as it produces. Too much variation high or low would ruin the market for the world. But there comes a tipping point where China starts being so dominant that it becomes a problem for a metal that is used across the globe. It is hard to say where that tipping point is. Is it 60%? 65%? 70%? I don’t know, but once one country moves to an almost monopolistic position, it’s surely a problem for a balanced market.
China has moved from 52% of global production to 55% in the space of 4 months. Where will it be by the end of this year? (Hint, read the next World Aluminium Monthly to find out.)
It pays to be careful when reporting announcements from the Chinese government. Take the recent announcement on tariffs as an example.
That announcement caused a great deal of upset around the aluminium world. Then someone reported that in addition to the rods and bars that were mentioned in most news stories, a third item had had its tariff removed as well. Someone reported that unwrought aluminium alloys were to have their 15% tariff removed. That got people even more upset, including one well known bank, who issued a note to their clients that showed how a flood of additional metal would leak from China because of this.
Then in the last couple of days, America’s Aluminum Association issued a statement criticising China because it “removed a 15pc export duty on unwrought aluminium alloys and a 5-15pc duty on bars and rods of alloyed and non-alloyed aluminum.”
There’s only one problem with the AA’s press release, and with those who also ran this story or advised their clients. It’s wrong.
The problem comes down to the simple fact that there are two products under the Harmony Code 76012000. One of them is “Low alkali refined aluminium alloy (Na+K+Ca<10ppm, H<0.12ml/100gAl)”, while the other is “Other Unwrought aluminium alloys.”
The announcement on April 23 removed the 15% tariff on the first item, but left the second item unchanged. I am told the low alkali product is used in cable manufacturing, specifically ACSR, which is a steel-reinforced cable with an aluminium core.
It’s an easy mistake to make. The list of products that were covered in the April announcement went for several pages, and it followed the pattern of the previous tariff announcement, made back in December. In the December announcement, both products were identified, and both had their tariffs reduced from 30% to 15%. In the April announcement, only one of them was listed. I have the Chinese originals (in PDF) and a translation if anyone wants to see them.
It may seem a small slip to make, and it is, but the ramifications can be embarrassing for those who go public with criticism of China, or who warn their clients with words like the following:
“And what can we expect from aluminium alloy? We think that the immediate impact will be more significant for aluminium alloy exports. This is a trade flow that is far larger and more established and, hence, in our view will be easier to ramp up.”
It’s not unlike what happened last year, when a Houston-based petcoke consultancy published a story about Shandong province cutting aluminium production. They had relied on an English translation of an announcement from the provincial government, but the translation mistook “limit capacity to…” to mean “cut capacity to…”. The consultancy published the story totally oblivious to the fact that their story was completely wrong.
If your analyst or bank or consultant is telling you that this or that is happening in China, check where he is getting his facts from. Is he using primary research, or other people’s press releases? Is he relying on someone else’s translation from Chinese, or is he getting back to the source documents? Look at his charts and his footnotes – what does he list as his sources, and who does he acknowledge?
Or better yet, contact AZ China so we can tell you what’s really happening inside China’s aluminium industry.
HSBC released its early call for PMI today, with the result showing the Purchasing Managers Index sitting at 49.1. It’s a slight improvement, but still well within contraction territory.
One data point is hardly anything to get worked up about, but Bloomberg’s Tom Orlik summarised the situation well with this graphic. It’s yet another pointer, but like all the rest, it’s pointing in the wrong direction.
Those of you on the carbon and petcoke side of things know that we have been warning for some time that anode quality petcoke is becoming increasingly scarce. We will have more to say on this in the next week or so, but consider this small anecdote.
China is casting its net wider in the search for coke for the aluminium market. According to our sources and according to certain shipping records, anode grade coke has come into China from as far away as Brazil and Argentina. Now another cargo is coming from Washington State in the USA.
This is on top of the regular imports from Indonesia. China is now having to compete with American calciners for the Indonesian coke, as the latter ramp up their own searches for cokes. American customers can generally pay better than the Chinese, due to the higher sell prices for US CPC.
Demand for anode grade material is continually increasing, while China’s domestic production of this grade of coke has been falling for 12 straight months. Readers of our Black China monthly report will already be aware of this developing trend. If petcoke is important to you, and you aren’t a subscriber, contact us for more information.
We discussed in the previous post that Rio Tinto has put its Pacific Aluminium asset up for sale, with a reported price tag around US$1 billion.
Here’s one thing that won’t happen. Given the history of 9 months ago, one thing that won’t happen is for Ivan Glasenberg to pick up the phone and call Sam Walsh.
It was about 8-9 months ago that Glencore tried a tilt at Rio Tinto, an unwanted advance that was rejected out of hand, forcing Glencore to count 6 months before they could have another go. That time period expired in April. By all reports, the unwanted marriage proposal left some ill-feeling behind, and the two king pins are more like kings on a chess board, keeping well away from each other.
Some insiders say that it was Glencore who was in the frame back in 2011 as a possible buyer of the PacAl asset. The anecdote goes along the lines that on the sidelines of an MB conference, Ivan Glasenberg and Jacynthe Cote had dinner together, and in that dinner, Jacynthe asked Ivan how many billions he thought PacAl was worth. Ivan’s answer was reported to be “none.”
Whether that anecdote is true or not, last year’s play on Rio has meant that Glencore and Ivan Glasenberg are probably not ever going to be invited to discuss PacAl over a cigar and scotch.