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A warning to Chinese aluminium producers – do not read the announcement from Alcoa this morning about electricity prices in three of their plants, unless you feel like a good cry.
The government of Quebec province in Canada has reached an agreement with Alcoa for electricity prices for the Baie-Comeau, Bécancour and Deschambault plants in that province. The new electricity rate moves from 2.8 cents per kilowatt hour to 3.4 cents. These rates are good to 2036 for Baie-Comeau and to 2030 for the other two plants.
In simple terms, that puts the Alcoa price at roughly one quarter of the price that smelters pay in the heartland of China’s aluminium industry – Henan province and its nearby powerhouse Shandong province. Even the behemoths being built in China’s northwestern provinces struggle to compete with that electricity price, and they have the additional burden of being thousands of kilometres from supply and end-use markets, something that Quebec does not suffer from.
In any case, even if they have better prices today, those smelters in China’s northwest will look at the locked in dates, 16 to 22 years hence, and also cry. Being fuelled by coal, those smelters will be victim to the rise and fall of coal prices. Admittedly, coal prices are softening, but that is not to take away the rent-seeking motives of the provincial governments in Xinjiang, Inner Mongolia and so on.
Thee is no chance that the provincial governments in China’s northwest will take a leaf from their counterparts in Quebec.
TMS is over for another year. As per usual, some people stayed for just a couple of days, others used the Wednesday for golf (M&M were seen with bags of clubs, but weren’t the only ones), while some stayed past the Thursday for a couple of days of R&R.
What to make of the narrative this year? If last year was tough, this year was grim. Aluminium companies had a tough year last year, and were in no mood to hear about price increases. Carbon companies were looking for new business opportunities, but these were almost non-existent. The announcement that Point Henry smelter will close cast a pall over whatever lighter mood there might otherwise have been.
One of the outcomes of a grim year was that numbers were down. The crowd at the BP party was down (based on an eyeball measure), while the Jacobs reception apparently did not crack 600 (though that event was by invitation only.) The Rain CII event seemed a little better attended than other years, though again that judgement is via eyeballing the crowd. But generally, it seemed that there were less people congregating in the lobbies of the TMS hotels.
Certainly there was no reduction in the number of meetings (we had a total of 47), but the big complaint from everybody was that the spread of hotels made things difficult. We had meetings at 6 different hotels, which meant that often we had to finish early in order to allow time for the walk to the next hotel. When you only have one hour per meeting, a reduction of 10-15 minutes is a big loss. Fortunately, we were able to meet most time schedules, though I admit I slept in and was late for one 7am meeting.
And so the juggernaut rolls on, landing again in Orlando Florida, March 15-19 2015. At least we won’t have the problem of so many hotels. Next year it will be a choice of the Swan or the Dolphin. Along with holidaying families and little kids running around in their bathers.
Alcoa today realised a statement announcing that the Point Henry smelter would close by the end of August.
It’s a sad day for the industry, for the folks affected and for the entire city of Geelong where the smelter is based. Not unexpected, and nobody at the plant would have been surprised by the announcement. The only question was, would they retain the cast house and keep the rolling mill alive. We now know the answer is no. The rolling mill would not have survived without cast metal, while the cast house could not survive on its own. There had been some talk about trucking liquid metal up from Portland, but this has not eventuated.
About 1000 people will lose their jobs, not to mention probably up to 10 times that many in support industries – everybody from the contract welding shop to the lunch wagon people.
Geelong has had more than its share of knocks over the years. The Pyramid Building Society Scandal, the loss of International Harvester, Ford, and countless other manufacturing plants in the area.
At a macro level, it had to happen. High production costs, a small local market, the exchange rate and the low metal price all have their share of responsibility. But with no work, much less no manufacturing jobs in the town, locals are going to feel this pain for years to come.
Full disclosure – your blogger spent 13 years at Point Henry, going straight from high school into the Personnel Department as a junior clerk. From there, I worked in the Safety Office, the Industrial Engineering office (building 814E) and the planning office. From there, I spent time running the cast house planning function, before moving to Operations as a foreman and supervisor. So I got to know almost every inch of the plant, from the alumina unloader to the extrusion plant. Alcoa paid to send me to university, which gave me the Bachelor’s degree that I could hang on the wall. I would not be doing what I do now if it had not been for that time in the plant at Point Henry.
The one unusual part of the announcement was that Alcoa has set aside $250 million for site remediation. From what I hear, pot line 1 is slowly sinking into the swamp on which the plant was built, so that’s probably why the budget is so darned big.
Congratulations to Koppers for an excellent event yesterday. The Koppers team, led by Markus Spiess, who in turn was led by his lovely wife, took us to the San Diego Wine and Culinary Centre.
There we discovered that in order to enjoy lunch, we first had to make it. The 30 or so of us were split into 5 teams, and each team was assigned a dish to prepare – an appetiser, a salad and a main course, which Americans call an Entree.
It was the full MasterChef treatment. We were given aprons and a recipe and full range of ingredients. We soon discovered we were also allowed to vary the recipe according to our own ideas.
Without trace of bias, I can report that Team 4′s Linguine and Chicken was an outstanding hit. Compared to team 5′s rendition of the same recipe, we on team 4 were unanimous that our chicken blew the competition away.
A big thanks to Markus and all the folks at Koppers. Ji Yuan and I had a great afternoon.
- Former Comalco, Rio Tinto, Rio Tinto Alcan and Pacific Aluminium raw materials guru Alan Hustwick has hung up his bagpipes. Alan retired at the end of last year.
- Alan’s departure saw the company take the chance to re-organise a little. As a result, Peter Rees, who had moved up to Brisbane from Tomago Aluminium, has accepted a redundancy package.
- Congratulations go to Greig Stevens, who steps into Alan’s job – except that it has been restructured and downsized a little. Greig tells me he has a team of 8 people.
- Guess who, Don’t tell department – Which senior manager of a major carbon company told his company that he was attending TMS – except that he went to Las Vegas instead?
- Spotted having dinner together last night were Mike Meyers and Stu Ehrenreich. Mike was previously working for DQ Carbon, but sources tell me there is a new arrangement forming.
- Dr Akram Madanat, previously with the Gasan calcining project, has severed all ties with that company, and is now working on some new projects related to the calcining industry.
- Zhou Yan, also previously with DQ Carbon, now has her own business in Shanghai, representing one of the cathode companies out of Shanxi.
It is becoming a bit of a tradition – a bunch of Aussies (and a couple who represented the multi-cultural dimension of Australian culture) got together tonight for a dinner. What better way to make up for being away from our loved ones for yesterday’s Valentine’s Day than to be among a bunch of Aussie blokes.
In keeping with the way that Aussie blokes look at things, the order of business was very clear. First up was the selection of which beer to drink, and Bruce G bravely volunteered to taste a fight of 5-6 beers to see which would be the best.
We then moved on to the next topic – the likelihood of Pt Henry surviving the current review of operations being run by the folks in New York and Melbourne. As always when a bunch of Aussie blokes gets together, Bruce P suggested that we run a pool on the outcome. For the sakes of those whose jobs are on the line there at Pt Henry, I won’t go any further with this, and all of us wished those colleagues there best of luck for the future. (For the record, not all of us thought the plant would close.)
Bruce W then regaled us with stories of his son’s exploits in Hollywood, while Bruce B at the other end of the table had the sad news of telling us that he would not be able to attend TMS next year, as the dates conflict with Duck Hunting season in his little pond. Bruce T promised to support Australia in the next world cup, and Bruce S thought that San Diego winters were pretty good.
Meanwhile, Bruce G who had volunteered to taste test the flight of beers shared some stories of his visits to China, while Bruce P who was sitting beside him could only nod his head in agreement – or was he falling asleep?
All in all, a great evening, though we did miss Bruce C, who when he attends the Aussie dinners often puts his hand up to pay for the entire dinner. Come back Bruce, is all we could say.
(In case you are wondering, all men in Australia are named Bruce.)
Congratulations to the Jacobs Consulting group. The reports from around the lobby of the Westin Hotel, where Jacobs held their coke conference, were that this year’s conference was one of the better ones.
That’s no mean feat, given that at least one speaker cancelled at the last minute. This year’s TMS will be missing Mohan Handalkar from Goa Carbon, who had to cancel at the last minute.
Others commented that it was a little strange that Bai Info, the notorious Chinese information supplier, were see handing out flyers for their conference, right out the front of the Jacobs conference. It’s unknown if Bai Info had permission from Jacobs to do so, but some delegates were a little bemused by the antics. Anyone who knows Bai Info knows however, how low they are capable of sinking.
It’s that time of the year again. TMS is back, this year in San Diego, as it was in 2011.
The official TMS period does not start until Sunday, but no doubt some people were here days earlier than that. It has been a tradition that some companies use TMS week as a chance to bring the team together in the week prior. Others may have come early to attend the annual Jacobs Coke conference, held Friday and Saturday.
In reality, the first informal meetings take place at airports. On our way through San Francisco airport this morning, we bumped into a couple of Chinese attendees, including Tian from Sinoway. Michael Reynolds said hello, describing to us the challenges of flying through New York in one of the worst winters in recent times. Seems his journey will be even longer than ours.
We will bring more stories and photos from around the event. Stay tuned.
The International Aluminium Institute has published the figure for China’s December aluminium production.
December came in at 1.93 million tonnes, which is something of a surprise. With 31 days in the month, it calculates out to 62,300 tonnes per day. This is a fall of just over 4% compared with November.
For the year, the IAI numbers show China produced 21.9 million tonnes, plus another 2.4 million tonnes of “unreported production.” This is code for plants such as Hong Qiao and one or two little plants that aren’t recognised by the China Nonferrous Industry Association. Since Hong Qiao has at least 2.4 million tonnes of production, we can safely add this plus a smidgeon more, and come up with a real figure of 24.5 million tonnes.
We have not see any significant closures in the last couple of months to justify a fall of 4% last month. But it is worth remembering that the daily production rate is still or very close to record rates. December’s rate of 62,300 tpd compares with October’s rate of 62,900 and September’s rate of 61,900 tpd. In that context, November’s rate seems a little high.
But it is not uncommon for China’s monthly figures to have peaks and valleys that don’t bear any relationship to reality. The trend however is more indicative, and the recent trend has been relatively flat. That’s because although there have been some smelters in the Northwest of China complete their construction phase and start turning on the electricity, they have yet to make a significant impact on the supply number. It takes up to 12 months for a modern smelter to get to 100% efficiency.
The spectre of rampaging mid west premiums is great news for producers, who have been struggling under a low metal price for quite some time, but bad news for those who aren’t able to pass the increases on down the line. US based manufacturers had better have a pricing structure similar to those of companies like Novelis, who have a mechanism in their pricing that sees most or all the change in premium passed on to their customers.
But it isn’t just US manufacturers who will feel the pain. Those outside the US had better get ready for some pain coming soon.
With premiums fetching north of $400 per tonne, metal units in Russia, the Middle East and perhaps even South Africa will be attracted like iron to a magnet. Everyone will want to cash in on the high premiums.
But that means metal that would normally go to Taiwan, Japan, SE Asia and other markets will now not be available. Although Japan premiums are negotiated quarterly, the next round will likely be conducted in an environment where there are no spare metal units available. We could be in for a big jump in MJP premiums in Q2. The question won’t be, will a new record price be set. The question will be, how high will the new record high price be?