Category Archives: Uncategorized

Golden Week

Written by Paul Adkins

AZ China’s offices will be closed for one week commencing tomorrow, as China celebrates the October 1949 revolution that put the Communist Party in power. The holiday lasts a week on the mainland, though only 2 days in Hong Kong.

We will continue to report on the market and industry via this blog.

The office will re-open October 8.



Easy come, easy go

Written by Paul Adkins

Markets were pleasantly surprised 9 days ago when the HSBC Flash PMI came in at 50.5. That result was better than the consensus forecast of 50.0, and a little better than August’s level of 50.2.

Any score above 50 represents growth.

But this morning’s announcement from HSBC took that little fillip away.   The final number for September has been declared as 50.2, the same as August.

According to the HSBC announcement, new orders and factory output were both revised down from the flash reading, with the one bright spot being that new export orders were up.

While it’s still an expansionary number, markets have been looking for signs that the bad news of the last few weeks was a temporary phenomenon, not part of a general slowdown in China’s economy. This morning’s number does nothing to encourage markets and nothing to suggest that some sort of government intervention will happen soon.


HK: Why “umbrella revolution” is a bad idea

Written by Paul Adkins

The iconic photo of a single man holding up an umbrella in a sea of tear gas is likely to go into the pages of photojournalism history. And the slogan that has risen from the throng of Hong Kong protestors, of “Umbrella Revolution” has a nice ring to it.










Umbrellas served as a flimsy defence in the tear gas and pepper spray responses from HK police on Sunday, but a better defence against HK’s fierce midday heat on Monday. Umbrellas are a simple yet effective symbol for a demonstration – multi-coloured yet with the same purpose.

To the eyes of those in power in Beijing, it’s not a long jump to be reminded of the colour uprisings in the Arab Spring. For centuries, colours have been a powerful symbol and rallying point for protestors, and the fact that HK’s umbrellas are multi-coloured makes no difference.

But the real problem is in the second word. The protests so far have been about rejecting Beijing’s plans for the 2017 election of a new Chief Executive for the island.   That’s a protest, not a revolution. It’s likely that there are numerous other grievances bubbling under the surface, some related to the main point, some in relation to Beijing’s governance overall, some totally unrelated to the pursuit of democracy. But if the protest leaders allow the agenda to be broadened into a wider framework more closely aligned to revolution than to protest, Beijing’s reaction is likely to be much more severe.

As it is, Beijing has few options.   It could quietly seek the present Chief Executive’s resignation – CY Leung is unpopular on the island. It could send in reinforcements to bolster the HK police and its military presence on the island, said to be about 6000 troops. Or it could take a conciliatory approach, setting up discussions that cause the protestors to go home but which run for months with no progress. (Such an approach was used a couple of years ago when similar protests took place in Southern China, with the discussions on reform achieving nothing. HK is not likely to be fooled by that approach, and any new protest is only likely to be more strident.) One thing is for sure – Beijing will not back down or reverse its decisions.   Beijing cannot afford to send messages to Taiwan, Xinjiang, Tibet and other restive groups that if you push hard enough you will get your way.

President Xi Jinping has already shown his credentials in his primary role as defender and promoter of the Communist Party. He has brought down an ongoing campaign against corruption within the party, and brought the PLA into alignment by replacing some generals. The language of compromise and consideration has not been part of his rhetoric since he took power, so it’s unlikely we will see that sort of reaction in HK.

Many commentators have been jumping to comparisons with the 1989 Tiananmen Square protests, and they way they were dealt with.   Perhaps a more current comparison is to look to Urumqi. The Party’s reactions in places like Xinjiang are a grim reminder of what could happen. Of course, HK is completely different to Urumqi. HK has the advantage of being an international financial centre and hub for multi-national corporations. It is an important trade link for imports and exports. But Xinjiang has vast reserves of coal and is an important strategic outpost protecting China’s western front. In that respect, HK and Xinjiang are similar. They have strategic and commercial value to Beijing.

Perhaps the most important difference is that in Xinjiang, the protestors are Uighur, seeking religious freedom amongst other things. In HK, the protestors are Chinese, seeking freedoms that go directly against the Communist Party’s model, a more unpalatable fact for Beijing.

Let’s hope the protestors stay on message, that it’s a protest, not a revolution. For the sake of their safety.

Tomorrow is a key test date – October 1 is the anniversary of the Communists taking over China in 1949.


HK: This is serious

Written by Paul Adkins

The international press has yet to catch up with the goings-on in Hong Kong, but the potential for a major push back by Beijing is becoming a serious threat.

Thousands of students and locals demonstrated in Hong Kong yesterday, blocking parts of the Central Business District. They are protesting against Beijing’s watering down of the agreement signed when Britain handed its former colony back to the Chinese. Beijing’s mantra at the time was “One Country, Two Systems”, but recent announcements and policy directives have removed much of what had previously been agreed to, angering many Hong Kongers.

Yesterday’s protests were not the first, but they appear to be the biggest. As of this morning, much of the central business district is still blocked. Hong Kong police have been using pepper spray and tear gas and arresting protestors, amid chants of “Police are Hong Kongers too”. But the response from the local authorities has been tepid.

It’s easy to rush to comparisons of the 1989 protests in Beijing. Protestors calling for democratic reform, wavering reactions from local authorities, a groundswell of optimism and determination among the protestors.  In 1989, we did not have the level of internet access and social networking that we have today, and Hong Kong is much more of an international hub than what Beijing was 25 years ago. But we have a hard man in Xi Jinping in power in Beijing, a man who is currently spearheading a campaign on corruption in the ranks of the Communist Party. He has just completed a reshuffle of senior appointments in the PLA, meaning he has more people in key military positions who owe their allegiance to him.

This morning the students and protestors managed to get to one of the China national flags on one of the major buildings, and turned the flag upside down. It’s a symbolic finger-gesture to Beijing. It’s impossible to say how Beijing will react, but the fear is that  when Beijing acts to close the protests down, it will be a total and complete shutdown of much more than the voices of these students and protestors.

For mine, I would be avoiding the Central/Admiralty areas of HK, and staying away from the island altogether if possible. Unfolding history is rarely a bloodless process.


Petcoke import ban one step closer

Written by Paul Adkins

In an announcement that is sure to send shivers through the petcoke trading community, China has announced a ban on the import of coal with sulphur levels above 3%.

The new rules, which come into force in January, will have a 3-tier structure of restrictions.   Level 1 bans coastal cities from importing coal having sulphur levels above 1% and ash levels above 20%.   Level 2 bans the transport of coal over 6ookms if the coal has a calorific value of less than 3940kCal/KG, or has sulphur exceeding 1% or ash at 20%.

Level 3 applies a total ban on any coal having ash at 40% and sulphur at 3%.

These moves are part of the government’s push against pollution. Analysts say that Australian coal is likely to be the hardest hit, because of slightly higher ash content.

But it seems to me that it is just a matter of time before similar rules are announced for the import of high sulphur petcoke.   China imported just over 8 million tonnes of this category petcoke in 2013, and there had been rumours this time last year that a ban was imminent.   At that time some entrepreneurs rushed out and bought inventory hoping to capitalise on the supposed ban. But the ban didn’t come, and in any case, imports of high sulphur petcoke have declined in 2014. Higher shipping costs, increased domestic supply and a sluggish economy have conspired to slow China’s appetite. Most imported HS petcoke comes from North America.

There has not been any announcement yet, so this is just an opinion of mine that a ban will come.   While it seems likely in the current environment, regardless of the limited contribution such a ban would make to China’s pollution fight, we will watch for any future announcement on this.

(In Customs data, high sulphur petcoke is defined as any coke having sulphur levels above 3%. Such coke makes an important contribution to the supply of coke for anodes for the aluminium industry.)


Chinalco GM “under investigation”

Written by Paul Adkins

Reuters is reporting that Mr Sun Zhaoxue, general manager of Aluminium Corp of China (Chinalco) is under investigation for “serious disciplinary violations”, a euphemism for corruption. The news comes via a notice published by the Central Committee for Disciplinary Investigation (CCDI). This is the Communist Party’s anti-corruption watchdog.

Mr Sun is also vice Chairman of the listed company Chalco, according to Reuters.

We will bring any more news on this as it comes out.

No talking about talking

Written by Paul Adkins

Antaike, the daughter company of  the Chinese Government’s China Non-ferrous Metals Industry Association (CNMIA) has announced that their annual aluminium conference will be held in Kunming November 25-27. That’s exactly the same dates as the ARABAL conference.

Antaike’s conference is a difficult one to organise, because there are so many stakeholders involved.   A few years ago, AZ China had some informal discussions with Antaike about cooperating for the conference. Out of those discussions (which came to nothing, as they didn’t want our help) it became clear that they needed to consult with the leaders of several aluminium companies, sponsors, organisers and other stakeholders, to gain agreement to a date.   It’s often the case in China – hubris dictates that egos must be stroked, especially when SOEs (State Owned Enterprises) are involved.

The Antaike conference is always held in southern China, as it’s too cold in the north!

But since they were second into the public domain with the date, surely it wouldn’t have been too hard to select a different date?   As it is, Antaike normally holds their conference overlapping a weekend, but this year have moved mid-week.   Couldn’t they have spoken with the Arab Aluminium Association to check the dates?

It’s a case of two behemoths demanding attention, but for mine, ARABAL deserves the better attendance. The Arab industry represents the second largest production region, while Antaike represents the largest.  ARABAL is of course heavily oriented towards the Arab aluminium sector, but the conference agenda clearly has a global view, with topics including the dynamics of the current global bauxite and alumina markets.  Antaike’s papers are usually Party-approved rehashes of policy, or ridiculous assertions, such as one foreign speaker’s claim that China would be importing 4-5 million tonnes of metal by 2015 (in the 2011 conference).  ARABAL usually has a heavy weighting of industry leaders (which means you get the corporate view which tells you little), but Antaike gets mostly traders and lightweights who have no views.

The two organising groups have structural differences that might have had something to do with the clash of dates. ARABAL’s organising committee has representatives from all the smelters in the region.   Antaike is a for-profit company run indirectly by CNMIA, and holds multiple conferences throughout the year, including for copper, nickel and cobalt.

But both conferences will suffer from the competition against each other. None of us punters will be able to get to both, given the time zones and travel times.   If they genuinely had something to offer us, they would have gone to some lengths to ensure we don’t have to make the choice of conferences. Few of us can afford to attend more than 1 conference per year anyway, and while our time is more important, the cost is also a factor, and on that score, Antaike wins. But it’s not a simple matter of cost, but of bang for the buck. If you are a trader in the China market, Antaike is worth it – not for the conference but for the meetings outside and around the conference. If you are a global player, ARABAL offers a cheaper alternative to the same thing than the upcoming Metal Bulletin conference, which is asking US$2400+ for a conference that runs 1.5 days.

Yes, it’s true I am not an unbiased observer, since AZ China had its own conference back in May. But we spent considerable time checking the calendar to ensure we don’t clash with the likes of CRU or Harbor or AMM.

Xinfa explosion update

Written by Paul Adkins

We now understand that the accident at the Xinjiang Xinfa smelter occurred last Friday, although word of the accident only filtered out yesterday.   We understand no one was hurt in the accident, which occurred inside the pot room, near one of the pots.

At this stage, we understand the actual impact will be not as large as first predicted. We now believe about half the line was affected, with the loss of 200kt of capacity, not 400kt as originally reported.   We will continue to monitor and report.

Xinfa explosion

Written by Paul Adkins

We have received reports that an explosion has occurred at the Xinjiang plant owned by Xinfa.   One report we have seen says that the explosion occurred in the power station, presumably a rectifier or transformer.   If that’s the case, then the plant should have been able to conduct a reasonably orderly shutdown, and more importantly, there should have been no injuries.

We are still checking the details with the plant. At this stage we only know that the alleged explosion occurred, but we have not established whether it was the new line that was just starting up, or one of the other lines.

We will bring more reports as news comes to hand.

Update: No sooner that we published this than we got further confirmation that an accident has occurred.   We spoke to a representative of the plant, who can’t be named because he is not authorised, and he confirmed that an accident has occurred.   SMM have published a story that the explosion was in an electrical control cabinet attached to one of the pots, and that preliminary investigations suggest it will take 2 months to restore the line.

An explosion in a control cabinet makes less sense.   The circuitry should have been robust enough to limit any problems to just the cell that was affected.   We will continue to monitor and report as more news comes to hand.

The loss of 400,000t of new capacity should not have too big an impact on the physical market, though one can never underestimate knee-jerk reactions.   I have seen a Macquarie Research note that says that it will “delay the emergence of a surplus in the Chinese market “, but new aluminium potlines have a slow ramp up anyway, and there is still plenty of new metal units coming from restarted lines as well as new capacity that is due to enter the market in the remaining months of this year.

One small step

Written by Paul Adkins

Those of you who watch China’s petcoke supply equation will know there is a small but important niche in China’s anode grade petcoke market – the small independent or “teapot” oil refineries.   Most of the almost 50 refineries are located in Shandong province.

For years this group of refineries has been lobbying Beijing to allow them to import of crude oil directly, rather than through the major importers.   And for years, Beijing has refused the request, each year allowing only 1.8 million tonnes of crude oil to be imported outside of the major import licence holders (companies like Sinopec and CNOOC import about 280 million tonnes, and growing.)

It’s an important part of the picture for those wanting to vary the blends of cokes going into anodes.   Teapot refineries often offer parcels of low sulphur anode grade coke to the domestic China market, and often at discounted prices, but the problem is, they can’t offer continuous supply.   Most of their feedstock comes from fuel oil and other sources (although we have heard of some refiners importing crude oil by giving it another name).

But that stand-off seems to have finally made some progress, although only a limited small step. Beijing has granted a licence to import crude oil to a company called Guanghui Energy. The licence allows this company to import up to 200,000 tonnes of crude oil per year.

It’s a small step because this company is based in Xinjiang, and will import the crude across the border from Kazakhstan.  The majors have resisted any attempts by the teapot refiners to import oil, so this licence may be a small step towards opening this market.  It may also be the exception, allowed for by the remote location and source of oil. Let’s hope that this is not the case, and that we will see more imports allowed for the teapot refineries, which should in turn allow anode grade petcoke supply to improve.