Category Archives: Uncategorized

Raw aluminium export tariff

Written by Paul Adkins

China’s export (and import) tariff schedule for 2015 has been released, but with no mention of any change to aluminium tariffs.

There had been a lot of talk in the market recently about the possibility that China would remove the 15% export tariff on raw aluminium. The rumours started in LME week, when one particular bank suggested in their client briefing that there was a 25% chance that the tariff would be removed.   The rumour mill hit top gear a few weeks ago when a Chalco senior exec made a speech at a conference in China calling on the government to remove the tariff.

But there have also been several posts on this blog seeking to let you know it was all puffery.   See here and here for example.  In our private discussions with clients, we have been saying the same thing.   The tariff will not be removed.   And we were right.

We have more details in our World Aluminium Monthly, which is due out very shortly.   If you are not a subscriber to the World Aluminium Monthly, contact us using the contact form below, and we will send you a sample copy.  A 12-month single user subscription costs US$ 3900, but if you sign up this year, we will give you a 10% discount.

Solving the mystery of China’s domestic bauxite production

Written by Paul Adkins

AZ China has today published a new Client Briefing Note which explores China’s domestic bauxite production growth.

Analyst June Wang has conducted a deep dive analysis of the data surrounding the industry in China. China does not publish domestic production data, but June has been able to build a pretty convincing case that shows quite an incredible growth rate this year.

According to June’s estimates, China’s domestic bauxite production grew by at least 50% this year.  That’s an amazing growth rate, and her sensitivity analysis shows that even if she is out on some of her numbers, the growth this year is still well ahead of growth in primary aluminium capacity.

We have sent the AZ China Client Briefing Note out to everyone on our database, so if you haven’t received an email from us yet, please fill in this form below, and we will send you a copy of the Briefing Note and add you to our mailing list.

December’s Black China Report

Written by Paul Adkins

The December edition of the Black China Report has been sent out.   Check your inboxes for the email with the link to the report.

Contact us if you did not receive the email, or if you are interested in subscribing.

 

Weekend reading – the King of Chinese names

Written by Paul Adkins

One of the features of China that we foreigners are not accustomed to is that so many people seem to share the same surname. But rarely are people with the same surname actually related, unless I guess we go back several thousand years.

According to the fountain of all 21st century knowledge, Wikipedia, some 92 million people have the surname Wang, which ironically means King or Emperor.  The second most popular name, Li, also has 92 million users, while Zhang, the third most popular, has 87 million people. These top three surnames alone account for more people than Indonesia, the fourth most populous country in the world.

All together, the top hundred surnames account for 85% of China’s population.

By way of comparison, the most common surname in the United States – Smith – has fewer than 2.4 million people and makes up only 0.8% of the general population.  The top 100 surnames in the US account for only 16% of the US population, and to reach the 85% mark that China’s top 100 names represents, you need around 150,000 surnames in the US. This is probably due to the US’s long history of immigration, something which China has rarely experienced.

According to Wikipedia, the top hits are:

  1. Wang, or in Cantonese,Wong, meaning king or emperor
  2. Li, in Cantonese Lee
  3. Zhang, which can also be written as Chang, and in Cantonese is pronounced Cheung
  4. Chen
  5. Liu
  6. Yang
  7. Huang.  The character for Huang means Yellow colour in Chinese.
  8. Zhao
  9. Wu
  10. Zhou. Zhou is a popular character in reference to cities, and means circle, or round.

So, three of the top 10 names in China also have meanings, while the others are only used as names.

President Xi Jinping is truly a rarity. His family name does not even appear in the top 100.

So, next time you are in China and are introduced to Mr Wang, don’t bother asking if he’s related to the other Mr Wang you met yesterday.

Dynamite!

Written by Paul Adkins

AZ China has announced a new feature to be added to the Semester Pricing Handbook (SPH) – analysis by Country and (Chinese) Supplier.

The SPH is a vital tool for anyone in the Calcined Petroleum Coke (CPC) field. Whether you are a buyer or a seller, the SPH brings you all the information you need to help you in your negotiations.   Sensitivity analysis, green coke and anode analysis, relationships with LME and SHFE – it’s all in the SPH.

But the new supplier analysis pages bring a new dimension to the service.  Where before we gave you all the bullets you need to negotiate CPC, now we bring you the smoking gun.   This information is dynamite.

To show you what I mean, just look at these two screenshots.

SPH Supplier page

This screen shows you what a certain producer was doing with prices in various countries over 3 quarters.

SPH country pageThis screen shows you what a certain country was getting from each supplier over 3 quarters.

The Supplier Analysis pages will be included at no extra charge in the next edition of the SPH.   But that’s the only place where you can obtain the Supplier Analysis pages.   A single-user 12 month subscription to the Semester Pricing Handbook is US$3900. Discounts are available if you are already a subscriber to other AZ China reports, or if you want to add more than one subscriber.

If you would like to order a subscription, please complete this form. Or write to me at AZ China.

 

 

AZ China’s Monthly World Aluminium Report

Written by Paul Adkins

When was the last time you looked at AZ China’s monthly aluminium report?

We have recently revamped this report to provide more of a global view.   As well, we have added a “hot topics” section, where we give a brief synopsis of the key issues in the aluminium market. We have tried to make the report more user-friendly, with deep-dive information for those who need it, as well as a quick review of the key data in case you don’t have time the first time around.

Our monthly World Aluminium Report also provides our “AZ China’s Call” section, as we provide in our weekly aluminium alert.   Here we try to give you an indication of what prices are likely to do in the coming period, and why.

If you have been following us in this blog, or on the Reuters Base Metals Forum, or our Client Briefing Notes, then you will know of our reputation as one of the best in the business.   We don’t look at copper or nickel or zinc – aluminium is what we know and what we do, and the Monthly World Aluminium Report forms the basis of our commentary and our predictions.

The AZ China Monthly World Aluminium Report is available on a 12-month single user subscription basis for US$3,900 (12 issues). Discounts are available if you are already subscribing to other AZ China reports, or if you are looking to add multiple subscribers.

If you would like to receive a free sample of the report, simply complete the fields below.

 

 

 

The economics of greed

Written by Paul Adkins

China’s trade data for November caused a surprise, with exports growing more modestly than expected, but imports falling dramatically.

November’s Trade Balance came in at $ 54.5bn vs $43.95bn expected and well above October’s $45.91bn. Exports stood at +4.7% y/y versus +8% expected and 11.6% in October, while imports dropped 6.7 % y/y. The consensus was for a 3.8% jump after an increase of 4.6% in October.

All of which leaves me wondering if there is any correlation between the trade data and the recent rally in the Shanghai stock market.    Could it be that the prospect of quick wins in Shanghai have led certain people to hold off sending capital out of China?

It’s well accepted that at least part of China’s trade involves the movement of capital, not just goods.   Raise an invoice on a foreign counterpart and the money flowing into China to pay that invoice goes into the export trade data, even if the purchased items were paperclips at  $1 million each.   Reverse the flow – pay money to a foreign invoice – and that same trade is counted in the import statistics.  Capital moves in and out of China according to the economics of greed. If I can capitalise on China’s higher interest rates, I will move money into the country.  If I want to get my money out of the country, I can.

Chinese people have very few investment vehicles available to them. Bank interest rates are negative in real terms, so they really only have a choice of property or equities.  We have all seen what has happened to the property market, as millions of Chinese sought to park their wealth in apartments, never expecting the price to fall. And it’s not the first time Shanghai has had a bull run, which in turn has led more Chinese to rush to the phones or broker websites.

So it’s quite possible that one of the reasons for the drop in the imports figure for November has been simply because those who were going to send money overseas have opted to take their chances on the Shanghai roulette table. We all know what will happen once the gap between price and valuation widens too far.

No doubt there are other reasons behind the drop in the imports number. But I bet this is one sure factor.

Every Chinese province explained

Written by Paul Adkins

Here’s a little weekend reading, in case you were wondering about China’s provinces and how they all got their names.

Certainly when you start learning Chinese, you quickly realise that names that sound exotic and mysterious to our foreign ears are really quite simple.   Shanxi, for instance, is simply that region that is west (“xi”) of the mountains (“shan”) and Beijing is simply the North (“Bei”) Capital (“Jing”).   Nanjing used to be the southern capital, “nan” being Chinese for South.

But this link gives you chapter and verse of every province and how the name came about.

Here’s the link.

 

ALF3 – more pain coming

Written by Paul Adkins

Aluminium fluoride, a tiny but key ingredient in the process of making raw aluminium, has had a tumultuous 21st century, and it isn’t going to get any easier.

At the turn of the century, the world had a natural, if somewhat artificial balance.   Producers in Italy, Tunisia, Norway, Mexico and the USA had the market clearly mapped out.  Prices were stable, and customers pretty much stayed with their regular supplier.  That is, until the Chinese came along.

When Xiang Xiang, now known as Hunan Nonferrous, figured out a way to get ALF3 into overseas markets, everything changed.  Prices plunged as buyers (full disclosure – I was one of them) deserted their traditional supply models in favour of new suppliers. Pretty soon the Chinese had taken the market leadership position, and were threatening to wipe out some higher cost producers.

But then the Global Financial Crisis hit, just as the Chinese ALF3 industry had been expanding rapidly.    China’s aluminium industry took deep cuts to production, and international producers soon followed suit.  Where once virtually every ALF3 producer in China was planning to sell record quantities and make significant profits, the whole apple cart got turned on its head.

Now the market is locked in a state of depression.   Chinese producers, saddled with excess capacity and filled with deep distrust for each other (that’s a subject for another post), had no choice but to keep agreeing to buyers’ demands for lower prices.   That not only hurt them, it also hurt international producers, some of whom had no ability to get near the Chinese price.   Some producers have subsequently switched to make alternative products, where they can make a profit.

Today, China still sets the price, though it is dictated to a large extent by the cost of the key raw material – fluorspar.   Fluorspar, which is also used in many other products, including the production of refrigerant gas and ceramics, is expensive to mine in China, and 2014 marks the first year where China has become a net importer of fluorspar, bringing material in from Mongolia to augment its own supplies.

Chinese producers are still losing money, or barely breaking even.  Fluorspar costs about US$300 per tonne in China, and you need 1.6 tonnes for every tonne of ALF3 produced. One company told me the industry had a net loss of RMB300 million in 2013. ALF3 currently sells for about US$1050. Two years ago it was selling for $1200.

But if the ALF3 industry is in pain now, 2016 will see a lot more pain visited on them.   That’s when the new Sepfluor plant in South Africa will come on line.   Tom Magauran, CEO of Sepfluor, told me at the ARABAL conference last week that their cost of fluorspar will be about half what it costs Chinese producers, mainly thanks to the fact that there is no overburden to be removed to get to the ore.

Although their plant will only produce 60,000t of ALF3, it will be positioned in the market at a point that will hurt the Chinese, geographically as well as on margin.   Being in South Africa, they will be able to supply Middle Eastern smelters for about the same shipping costs as the Chinese pay, but their price can sit well below the Chinese price and yet still command a reasonable margin.

By my estimate, if we take all the Middle Eastern capacity combined, there is a total demand for ALF3 of around 180,000 to 200,000t. It means that Sepfluor can supply up to a third of the total demand, thereby establishing a price point that buyers will want to see replicated among their other suppliers.

Tom Magauran described it as a “tectonic shift”, which if it pans out, will be a pretty good description for what lies ahead for Chinese producers.   Or another word that comes to mind is “bloodbath.”

 

The road from Xinjiang just got a little easier

Written by Paul Adkins

One of the enduring criticisms of China’s push to build smelters in the far northwest is that the cost of transporting all that metal to the markets 2000+ kms away is too high.   This was one of the many arguments Alcoa’s big guns were using a few years ago, and it’s often a question I am asked when making speeches and presentations.

These arguments come despite the fact that the total cost of production in that area are the lowest in China, and smelters in the region are profitable even in a low-price environment.

But the argument has lost a little more steam with news leaking out of the local government there.   According to our sources, the government has introduced a scheme to promote the transport of metal production to other provinces. The government will provide support for any plant that ships a minimum of 30,000t per month.   Details of the value of that support, how it would be paid and how much it would cost the province are still not available, but it’s a clear sign that the local government is trying to keep the projects on time.

For the Xinjiang local government, a subsidy on electricity prices makes little sense, with coal prices so low in that region and electricity prices being a fraction of what they are in Eastern provinces. But assistance on transport makes a lot of sense, especially in the winter months. For the government, the little they spend on transport subsidies is easily justified by the returns on taxes and the spin-off of additional jobs.