Category Archives: Uncategorized

Goodbye Alcoa Aluminum, hello Alcoa

Written by Paul Adkins

Alcoa’s announcement last week that it is paying almost $3 billion for a aerospace parts manufacturer is a sure sign of a longer-term strategy to take the company away from aluminium.

Firth Rixson, the company at the centre of the takeover, uses little aluminium in its products.   But it is at the core of the aerospace parts market, producing jet engine blades. “We are really material-agnostic,” Klaus Kleinfeld said in an interview on Thursday.

According to press reports, Alcoa changed its company description – the piece that goes at the bottom of press releases.

Instead of “the world’s leading producer of primary and fabricated aluminum,” Alcoa now calls itself “a global leader in lightweight metals engineering and manufacturing.”

Interesting that this new self portrait does not contain the word aluminium, and more interesting that it does not mention extraction, refining or smelting.   By its own description Alcoa now seems happy to talk about its downstream activities.

There’s been speculation around the industry for almost a year now, that Alcoa would eventually syphon off the primary metal part of the business.   That step may still be a long time away, but these moves by Alcoa do suggest that it’s not impossible.

Still, investor seem happy with the result, with the share price now at new yearly highs.

Weekly report review: weak market behind stable prices?

Written by June Wang

Dear readers, here is our latest “Weekly Report Review” . If you have any questions or requirements please tell us, thanks!

weekly report

 

Energy

With Iraq tensions increasing, crude oil prices climbed to a new level and stood at $107.26/t last week. Focussing on the domestic market, the coal price fell further due to high inventory. A situation that leads traders with a negative outlook to think the price will go down.

Alumina and aluminium

Import prices remained stable last week, however imported material is uncompetitive when compared with domestic alumina. For aluminum, there is no positive change in the downstream market. On-demand procurement volumes were limited to sustain price increase. Last week, aluminum price went down slightly.

 Raw material of AL

Although downstream demand continued be weak, refineries controlled their output to a relatively low level which helped petcoke prices stabilize. With oversupply and tighter cash-flow within the industry, they can’t push the prices up easily. Additionally, as demand for aluminum in the main market has shown no sign of a rebound, the  price might drop again.

ALF3 price continued to rise due to the low inventory levels, increasing by ¥50/t WoW. For good news, fluorspar prices started to rise slightly.

Aluminium output suffers as World Cup begins…

Written by Paul Adkins

Talk about priorities – the “Beautiful Game” is causing aluminium output to suffer!

A newspaper report today says that in Ghana, the local aluminium company, Volta, has been asked to cut back on its electricity consumption, because more power is needed to satisfy the huge demand for electricity during games in which Ghana is taking part. Neighbouring Ivory Coast will supply electricity to cope with the peak times, as its games are not scheduled at the same time.

Okay, so I grant you that Ghana’s aluminium supply is not a global game changer, but such is the pulling power of FIFA and football.  Here we have national economies experiencing a small shock thanks to a sport.   In a similar display of pragmatic priorities, the coup leaders in Thailand have announced that the curfew has been lifted for the World Cup.   And no wonder – games will be televised at awful times, 11pm, 2am and 5am, thanks to the time zone differences.

AZ China has an excellent reputation for its forecasts and outlooks, so here are our tips for the carnival -

  1. Australia to go through the 3 initial games without scoring a single goal (sigh)
  2. Brazil to score much egg on face with venues not complete, transport links not working and too much Cachacha
  3. Germany to take home the silverware. Spain as the possible spoiler.

 

 

 

Important news – ban on petcoke

Written by Paul Adkins

We received word yesterday that it seems the Chinese government has placed a ban on the use of petroleum coke as a fuel for glass companies and power plants.   So far it is only occurring in Shandong province, but that just happens to be the landing port for much of the imported petcoke arriving in China.

We had treated this as just a rumour, but we have now received a second independent report of the same thing.  (That doesn’t make it a “fact”, but it’s now reliable enough to report on.)  Apparently petcoke is now piling up at Shandong ports as a result of the lost sales.

It’s now a question of how long before the ban spreads to other provinces, and other industries.   Petcoke can be used as a fuel in cement and in CFB boilers.

Putting a ban on petcoke makes no sense.   Considering the amount of ash present in coal  relative to petcoke, and the amount of coal burned compared to petcoke, why would anyone bother with such a small contributor to the pollution problem?   On the other hand, we have also heard that part of this pressure is coming from the natural gas/shale gas lobby, who want to lock in their customer base.   That also makes no sense, at least until each glass plant has its own gas pipeline, and has converted its burners to the vastly different fuel type.

This action, if it is proved true, soaks more about the blind approach to problems that the bureaucracy uses in China.   In the same way that the Government sent in tanks and machine guns to kill a student protest 25 years ago, a sledgehammer approach to fixing the pollution problem speaks more about desperation than any sort of thought-out plan.

We will keep watching this important development.   To date, there is nothing on the Department of Environment website, but that often means nothing in China, where words and actions often don’t match.

Farewell Jacynthe

Written by Paul Adkins

Jacynthe Cote, CEO of Rio Tinto Alcan, is leaving the company.    According to the RTA press release, Ms Cote is leaving at the end of September to pursue other interests.

Clearly this was not new news, as Rio has already announced the appointment of a former BP executive to fill the role.   There had been some speculation in industry circles about how much longer she would stay in the job, given the tough market conditions that have prevailed since she took over.

But such speculation was not based on any suggestion of poor performance.   Jacynthe held a reputation within the industry of being an excellent CEO, and there’s no doubt she will be missed, both within RTA and in the wider industry.

Jacynthe joined the former Alcan in 1988, and rose to the top position in 2009 after Rio took over Alcan.   it’s not widely known, but the present head of Rio, Sam Walsh, was Jacynthe’s mentor in her new job as RTA CEO.

But Jacynthe and Rio have been battling for more than 4 years with forces that are greater than them.   The Global Economic Crisis sent metal prices crashing, and even to this day aluminium is still under-performing.   RT and RTA looked at an expansion strategy at first, enunciating a plan to close old inefficient plants and build new low-cost capacity.    There was talk of a smelter in Paraguay, and another in Malaysia.   Soon enough however, both projects died, as the industry continued an over-supply scenario.   Eventually, RT sought to spin off some assets, creating Pacific Aluminium, and it was Jacynthe’s job to sell this new company.   But there were no buyers anywhere near RT’s asking price.

The one star in the RTA camp has been the AP60 plant in French Canada, which Jacynthe championed.   It must have been a difficult sell job, to convince the RT Board to stump up the funds for this plant, even as the world shunned aluminium as a commodity.

it is fair to say that the job description and objectives that the new CEO has been given are probably quite different to the set of documents that Jacynthe was given in 2009.

We at AZ China wish her success in her future career.

 

Keep your friends close, your enemies closer

Written by Paul Adkins

The Washington Examiner newspaper has named Chinalco as being one of the Chinese State Owned Enterprises involved in the cyber attacks on American corporations, specifically Alcoa.

According to the Examiner, the court documents identify a Chinese company, named only as “SOE-3″ as having entered a partnership with Alcoa in February 2008.   The Examiner points out that Alcoa’s website announced a partnership with Chinalco at that time, leading to the inescapable conclusion that Chinalco is “SOE-3″.

The Examiner goes on to quote the court documents, saying that Chinalco hired the secret army of hackers at around the same time as the partnership was announced.   The hackers then allegedly sent emails to Alcoa executives, with the emails loaded with “phishing” software that would allow the perpetrator to gain access to Alcoa’s internal documents. The “phishing” led to the hackers gaining access to at least 2900 emails, and 863 attachments.

One presumes Alcoa took extra precautions before it more recently entered into a Strategic Alliance with China Power Investment Corporation (CPIC), another Chinese SOE.   There is no allegation against CPIC in any of the court filings or charges.

Naturally, all corporations gather information on competitors and stakeholders, and indeed AZ China has been hired in the past to perform such duties.   But there is a clear distinction between the gathering of data using legitimate sources and the use of teams of hackers to illegally access sensitive information.   Of course the Chinese will throw allegations back at the Americans in this case, but the sheer numbers, the sophistication and the arrogance of the alleged Chinese attacks is over the top.   The thing is, most of us who have lived in China long enough have been warning for some time foreign companies entering China of just this threat.

 

AZ China Conference in Review

Written by Paul Adkins

We had a great turnout for our AZ China International Aluminium & Carbon conference last week in Beijing.  And there were even several prize winners! During the welcome reception on May 5, several people won a free wine tasting voucher for having attended all four AZ China conferences. Two people also won Bespoke Beijing vouchers.

It was interesting that the 3 economists that we had on stage all saw China’s economy growing at roughly 7% over the rest of this decade.    Even the most bearish outlook, from the Conference Board’s Andrew Polk, conceded that growth will continue at close to this level.

However, Andrew also warned that it is “wishful thinking” to rely on urbanisation as a driver of economic growth.   While there is no doubting that housing and construction will continue to be an important part of China’s economic future, Andrew warned that there are many problems attached to that sector.   Meantime, it is going to take a long while for domestic consumption to grow to high enough levels to have a major role in the economy, and much work is still to be done in China’s social security and personal savings network.

The aluminium panels were somewhat more pessimistic.   Both Mr Lang Dazhan and Mr Dong Chunming were concerned about growth in capacity, and the pressures on the financial health of China’s aluminium smelters.

What did become clear, when looking at the economic discussion in alignment with the aluminium discussion, is that as China moves from being a “blue collar” industrial economy to a “white collar” smart economy, the rest of the world will see increasing threats of jobs transferring to China’s millions of university graduates, and an increase in semi finished products being shipped.   China will move away from toys and clothes as an export staple into higher end products, and this will change the relationship between aluminium users in the rest of the world and Chinese producers.

In the petcoke discussion, despite the increased risks arising from shale oil in the USA, and potentially elsewhere, the conclusion seemed to be that there is no problem sourcing anode grade petcoke, provided one is prepared to pay the price.   Mr Gerry Sweeney put this succinctly – it’s a matter of price.   The problem of course is that consumers of petcoke are in no position to pay extra for their coke until the aluminium price improves, and that may still be some time off.   It wasn’t discussed in the panel session, but it seems that coke prices could start to rise faster than aluminium prices, over the next couple of years.

If you missed out on attending, here are a few pictures.

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Pacific Aluminium mark II?

Written by Paul Adkins

Most readers would have seen the news that BHP Billiton has registered a new company in Australia. BHP Billiton Aluminium (Holdings) Pty Ltd was registered with a Perth Australia address earlier this month.

Don’t think for a moment however that this means that the world will get new aluminium capacity.   It is surely the first step along a path already trodden by Rio Tinto – the hiving off of assets into a separate entity, with an eventual search for a buyer.   Pacific Aluminium mark 2?

Presumably BHPB have learned all the lessons to be learned from RT’s experience, so we may not actually see this new company offered for sale.   Some commentators are suggesting that BHPB shareholders may find themselves owning this asset as part of their portfolio.

But that is all in the future.   So far, BHPB are simply saying that registering a new company and re-aligning assets is something that all well-run companies do.

 

Labour day

Written by Paul Adkins

The AZ China office is closed today and tomorrow, for the national Labour Day holidays.

In typical Chinese style, the government has added Friday May 2 to the holiday, but declared Sunday May 4 a normal working day.

Those of you who may have last minute business relating to the conference, please feel free to email us at enquiries@az-china.com.   We are checking incoming mail, and will try to address your needs as quickly as possible.

The office will be open on Sunday May 4.

However, please also note that all of us will be at the conference from Monday through to Wednesday, and back in the office on Thursday May 8.   We will be checking emails during the breaks at the conference, but our ability to respond quickly to some requests may be a little limited.

The best way to raise any questions or talk to AZ China staff is to look for them at the conference.   You will be able to recognise AZ staff from their uniforms.

We all are looking forward to seeing you at the Sofitel Beijing next Monday.

 

A blog about a blog

Written by Paul Adkins

Congratulations to the folks at Rain CII, who have entered the world of social media by launching their own blog site.

Launched earlier this year, the blog offers to give us an insight into the combined businesses of Rain CII and Rutgers, with the respective CEO’s being the first bloggers.

You can catch the musings of Rain CII’s Gerry Sweeney and Rutger’s Henri Steinmetz at blogs.raincii.com.