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ARABAL is over for another year. By most measures, this one can be called successful. The number of attendees was quite good, though it was boosted by a huge number of Alba employees. The papers generally were pretty good (though I admit I did not attend all of them, having meetings booked at the same time). The exhibition downstairs seemed to have good numbers, and a couple of stallholders told me they had some good leads arising. The general feedback I heard was mostly positive. The only indicator I can’t talk about is the financial one, but this was probably the least important for the organisers.
Speaking of feedback, I moderated a session on bauxite and alumina on Thursday. The acoustics of the room and the microphones meant that the 4 of us on the stage could barely understand what each other was saying, and if the speaker turned to the audience, it became impossible.
So other tidbits heard in and around the conference:
- Do Fluoride, also known as Do Fu Do or DFD, will have their new plant up and running by the end of December. Located in Gansu province, it will have 100kt capacity, and will sell to the expanding northwest of China, as well as into some Russian plants. DFD says the new plant will operate at $40-$50 per tonne lower cost than their Jiaozuo plant.
- Sinoway Carbon’s phase II expansion is on track, and will add 280,000t to their capacity.
- Possibly the most interesting of the papers came from Walid Al-Attar, Chief Marketing Officer for EGA. He summarised the global shift in market dynamics, with increasing demand even in mature markets, but with shifting supply.
- The paper that “got out of jail” the most was definitely that from Garry Jones, the new CEO of LME. In his speech he touched on the law suit with Rusal, the debate on queues and the effect of queues on premiums, and all the other contentious topics, but escaped without any questions from the floor, and even those from his fellow panel members were fairly gentle.
Next year’s ARABAL will be held in Saudi Arabia.
Congratulations to the team behind the event. It went off pretty well.
Late additional comment: Attendees were inundated with gifts and goodies from the organisers and sponsors. It really brought home the adage about the Middle East, as the “mine is bigger than yours” rule was applied. We received electronic devices, all sorts of pens and books and other knick knacks. The only gift that I thought didn’t reflect a lot of thought was the gift from one sponsor of local foodstuffs. For international travellers whose bags get checked going into an out of airports, food is not an item that travels well. Still it wasn’t as bad as at another conference recently, where a sponsor gave us a picture frame box. One of those little boxes that allow a photo to be displayed on each side and on top. But a hollow box made of cheap glass panels was never going to make the plane trip in one piece, and so it proved.
The Arabal conference room is huge. Almost as wide as it is deep, and with a stage that must be at least 30 metres wide.
As usual, there were TV cameras, photographers and dozens of hangers-on when the Deputy Prime Minister of Bahrain arrived to officially kick-off the conference. We had several speeches, in Arabic and English as part of the opening ceremony, the outcome being that the program was 30 minutes behind by the time the first conference speakers got up.
There were a couple of interesting points made during the papers on day one, which I give here in no particular order:
- Mr Abdulla Kalban, MD & CEO of EGA told us that they now have 1,573 cells in operation, with 2.4 million tonnes capacity. That equates to just over 4 tonnes per day on average, which isn’t bad across the two smelters.
- He was particularly excited about their SHAHEEN alumina project, which will deliver 2 million tonnes by 2017, with phase 2 planned for 2020. In addition, they have 45% share of the Cameroon Alumna project, and they own 100% of Guinea Alumina Corp. The latter will see bauxite mined from 2017, with a refinery in 2022, according to Mr Kalban.
- Mr Said Al Masoudi, CEO of SOHAR, made a comment that perhaps got missed by many in the audience. He said that as aluminium production rises, bauxite quality will become more important. Worth reflecting on.
- In a later session chaired by Raju Daswani, Deutsche Bank’s Grant Spore gave an excellent presentation on the outlook for aluminium. However I was a little surprised by his outlook for premiums, which he said was fall to $300 by the end of 2015, and to $200 by 2016. His argument was that 2 of the 3 drivers that pushed premiums so high have now ebbed into insignificance, but regional imbalances are likely to remain in play. While I agree with that point, I think he underestimates the role of regional imbalances going forward.
- Mr Jesus Villega from Harbor had his own views on premiums, saying that P1020 premiums would peak in Q1 2015, but that premiums for other forms of metal, e.g. extrusions, would remain elevated.
- Jesus also told us that aluminium penetration into the automobile market would get to 250kgs by 2025, double where it is today, though he didn’t specify whether he meant only America. China’s acceptance of aluminium into automobiles is likely to be slower, in my opinion.
The ARABAL Aluminium Conference got under way tonight with a reception that saw almost 600 people get together to renew old acquaintances and make new ones.
As is always with these sorts of events, you hear all sorts of interesting tidbits.
- Sunstone is presently building their new anode plant in Gansu province. The plant will be 350,000t in size, and should be on line by October 2015.
- Speaking of Sunstone, their business is becoming more customer-focused, as they look to meet customer needs even in areas where they don’t have production capacity. I understand they are now making sales in products such as aluminium fluoride, cathode blocks and calcined coke. They still have a focus on selling things that they make, namely anodes, but according to Qin Zhengjun, their local rep in the Middle East, they are trying to ensure that they understand what the customer wants from China, anodes or not.
- The Rio Tinto Alcan plant in Jonquiere is now operating at 570KA, roughly equivalent to the design rate. That’s good news, but as one person put it to me, “it’s only 38 pots.”
- There was a lot of discussion about the timing of this conference relative to the Antaike conference in Kunming. The two are being held at identical times, which is no good for anyone. Companies are either sending reps to both, plumping for one over the other, or trying to get to both. One gentleman I spoke to was flying to China tomorrow, just an hour or two into this conference, in order to be in China for follow-up meetings at the tail of the Kunming conference. That’s good for the airlines, but not for anyone else.
- The number of attendees here seems extra good. I don’t have any comparison numbers so I can it’ say whether there are more or less than other years, but this year does seem to be well-patronised. A few in the audience tonight put that down to Alba Line 6 – the suggestion being that with the conference being held in Bahrain, it gave suppliers a chance to position their services in front of Alba people.
- Still no word on final go-ahead for that project. Will we see an announcement this week while the world’s aluminium industry (minus those at the Antaike conference) are in town?
When Indonesia brought in its bauxite export ban early this year, several market participants were negative about the impact on China’s primary aluminium industry. But so far, several months later, markets have gradually became much calmer compared with original uncertainty. Why?
As expected, volumes of imports shrunk sharply this year. According to our statistics, imports in the past nine months decreased by 48% compared with same period last year, down from 54mt to 28mt. As well as Indonesia’s exit (the last cargo appeared in Customs data in April), Guinea, India and Fiji’s contribution all shrunk by 74%, 32% and 9% respectively, equivalent to 29mt of bauxite lost.
However, Australia and Guyana increased slightly with 5% and 6% in recent months, which brought merely 278kt. In addition, volumes imported from Ghana, Brazil and Malaysia increased significantly, especially for Malaysia. My colleague Paul talks about Malaysia in his post “Malaysia – The new Indonesia”. In addition, there were some new contributors, such as The Dominican Republic, which has jumped to the 4th largest export country to China till now, with 1.3mt, followed by India.
What about prices? As the chart shows, price increases mainly occurred in Ghana, Malaysia and Thailand, increasing by 22%, 34% and 34% respectively. Tighter ore supply has clearly driven prices up, falong with shipping costs. The average price of imported bauxite has stayed at $60/t CIF, with an increase of 9% y/y.
Note: volumes increase of Malaysia and Thailand were huge, in order to compare, we reset the growth of their volumes to be 1.
This higher cost for bauxite comes at a time when aluminium prices are under downward pressure. Excess capacity, which should ramp demand for alumina and therefore bauxite, is also causing the metal price to stagnate. We think the escape valve will be alumina imports, with more alumina shipped into China. It’s not a perfect pressure valve, as alumina prices will also drift up, but alumina imports don’t have the floor costs that bauxite has.
There was much made of the fact that Chinese alumina refiners were stockpiling bauxite ahead of the Indonesian ban, and an equal amount of head space given to estimating how long that stockpile would last. Our research indicates that there is still in excess of 30 million tonnes in reserve. So what have domestic alumina refineries been doing?
In 2014, the largest import company was Chiping Xinfa Huayu, and others in this chart are ranked in order behind them. With the exception of the trading company, all the major producers have reduced imports, only varying the % reduction.
For Chiping Xinfa, they chose Dominican Republic to replace Indonesia, with 100% of this country’s material going to Chiping Xinfa. Their imports dropped only 8%. Chalco Qingdao imports tended to take a shotgun approach. They have actively sourced from Malaysia, Ghana, India and Guyana. Some 48% of Malaysia’s bauxite and 77% of Ghana’s has gone to Chalco, with only a very small net decrease in total imports. Shandong Weiqiao, have imported a tiny amount from Malaysia, but are the most affected by the loss of Indonesia.
Yantai Jintai, as only one with positive growth of imports, mainly received from Australia and Indonesia. This company has doubled its purchases from Australia. More and more trading companies want to participate in the bauxite market, and they are mostly focused on Malaysia.
Although the structure of imports is still evolving following the withdrawal of Indonesia, the simple reason why the market has calmed down is that there is still plenty of bauxite in China or available to China. This is partly due to the many countries that have stepped into the breach, particularly Malaysia, and partly because of steep increases in domestic bauxite production, which I will discuss in my next post.
Purely anecdotal, but nevertheless enlightening.
For being one of the provinces closer to the coast, and being on the edge of the Yangtze River, Anhui province is also one of China’s poorest. The mighty growth seen in other cities and regions passed Anhui by. It’s also home to my wife’s family.
In a conversation yesterday with my wife’s brother, he told the story of a businessman who contacted a senior government official, seeking to make a donation of cash. This is not uncommon in China – if you want to get somewhere in business, you have to lubricate the wheels of the bureaucracy in your area. But this senior cadre was not available, so his 2IC agreed to hold the money for him.
That was fine, and all was well until the Communist Party Inspection team came to learn of the payment. Upon investigation, the inspection team discovered that the underling official was holding a large amount of cash. Never mind that he was holding it for his boss – he went to prison.
According to my brother in law, some 100 minor officials in his town outside the Capital Hefei have now been arrested as part of the corruption sweep. It’s no certainty that in President Xi’s campaign to stamp out the “tigers and the flies” that he will get anywhere near his target. As one commentator observed, for the vast majority of Chinese people, the tigers have no influence on their lives, but the flies are everywhere. But to hear of 100 officials being taken down in a town with a population of only 100,000, it is certainly having more of a reach than some people expected.
I will be at ARABAL in Bahrain next week. If you would like to meet with me, please send me an email to book a time.
Several people have contacted me recently about a rumour circulating that China would be scrapping the 15% export tariff on raw aluminium.
According to our sources, Chalco put this proposition to the government back in June/July. The government then sought comment from industry insiders, and the feedback they got was that doing so would only encourage an industry that was already over-capacity. Eventually Chalco withdrew the proposal, in about August according to our sources.
Given the amount of chatter on the topic recently, we have gone back to our sources, who have said it remains that there are no plans to scrap the tariff. Someone is however seeking to remove the tariff on non-alloyed strips and rods, but our sources say this has limited chance of success.
One can never be sure that Governments will do or not do what they say, so we will keep watching for any changes on this. But for now, we think that what is happening is that the same rumour is simply doing the rounds. A little like a common cold, everyone is catching it.
FWIW, tariff notifications usually come out in the first week of December, for the following year. So we will know soon enough, as we will for imports of high sulphur petcoke. There was a lot of talk this time last year that a tariff would be introduced on this item, but it didn’t happen.
I just caught wind of some comments made about me on an Australian website/forum. Back in March of this year, I questioned on this blog some aspects of a press release by an Australian company that was touting a deal made with Chinalco for the supply of graphite for aluminium anodes. The graphite will be mined in Mozambique.
According to the person who wrote the comments (under a pseudonym), I have painted myself into a corner and must be embarrassed. I am still laughing at this personal attack.
Graphite doesn’t change it’s nature just because it’s now November not March. It’s still too expensive for an anode, it’s still a difficult and dangerous proposition to use in an anode and it’s still not being used in Chinese anodes. It’s being used in cathodes, where it makes a whole lot more sense. Cathodes are designed to allow for thermal expansion, and when the electricity passes through the cathode, the electrolysis process has already taken place. For anodes, it’s an entirely different equation. Although anodes can be manufactured along similar lines as cathodes, anodes are right there at the “coal face” so to speak. To have some percentage of the anode perform differently at 950C than other parts is a good way to get dusting in the pot and cracks in your anodes.
If you are lucky, you might extend the life of the anode by introducing graphite into the mix. But you still have to work on a steady cycle of replacing spent anodes, usually something like 21 days. If some pots are running graphite anodes successfully, then they have to skip the cycle, which means the whole line is now out of sync. You can easily lose control of the entire line if you lose control of your anode cycle.
I also questioned the cost of bringing containers full of graphite to China. In March when I wrote that comment, anode grade petcoke was selling in China for around RMB1750 per tonne. The same material is now selling for as low as RMB1280 per tonne. Although that’s ex-works, it doesn’t cost a lot more to truck or barge the coke to the calciner and the anode plant (about RMB30/t on average). If it was a challenge to convince smelters to use imported graphite in March, what must it be like now?
This year China will produce 26.5 million tonnes of primary aluminium. At 450kgs per tonne of metal produced (on a net basis – on a gross basis, you have to manage graphite scrap, which becomes another headache), that means that China will consume just under 12 million tonnes of anodes, which means about 11 million tonnes of calcined coke. At what percentage will graphite replace calcined coke? 100%? Impossible – it’s difficult enough to get graphite now. So it has to be a blend, and as soon as you blend two different carbons with two different isotropic performance levels and co-efficients of thermal expansion, you get into trouble.
The whole point of a press release is to garner positive sentiment towards the company that puts it out there. The people at the graphite company probably achieved their goal, regardless what I think or say. And good luck to them, I hope they do well. But I sure hope they aren’t expecting China to suddenly switch to graphite anodes. Cathodes, yes, and graphite electrodes for the steel industry, sure. But not anodes.
If anybody is desperate to see the original thread, please contact me and I will let you know. I am not going to grace them with a link here.
(Hat tip to Tom for letting me know about the comments.)
Hat tip to Simon who sent me this cartoon. It comes from Conde Nast, and I acknowledge their ownership and rights, but doesn’t this sum it all up so beautifully.
Go to this link to purchase a copy to frame and hang on your office wall. It’s priceless.
Continuing to bring you news of comings and goings…
Francesco Bassoli has been named Chief Procurement Officer at Alcoa. This is yet another leg-up for Francesco, having been Global Procurement Director, then Vice President Europe Materials Management and Vice President Shared Services. A pretty good run up the ladder in the 6 and a bit years he has been at Alcoa. Congratulations Francesco.
I am told that Dan Lane has exited Glencore. (Perhaps someone can confirm this for me. I only have his email address, which is now bouncing.) Dan was the guy in the GPC and CPC world who forever looked the youngest of any of us, but matched that by also being one of the tallest and definitely the fastest talker. For a slow-witted guy like me, it was always a challenge keeping up with the speed at which he spoke. If it’s true that he’s no longer at Glencore then we all wish him good luck for the future.
If you have any other news of people’s comings and goings, please feel free to drop me an email.