Category Archives: aluminium
Save the date! AZ China’s 4th International Aluminium & Carbon Conference will be held in Beijing next year and we look forward to seeing each of you there!
In 2014, we will be taking the theme “2020 Vision“, and asking speakers to give us their vision of what the global aluminium industry will look like by then.
New in 2014, we will also have a strong technical stream. We will also be looking to provide our audience with more opportunities for networking, without missing out on the best papers and presentations.
As we move towards 2020, China at last seems to be slowing the frenetic pace of smelter capacity expansions. Where just a couple of years ago, we saw new smelters announced almost weekly, now we hardly see any new announcements. Instead, some capacity has been idled, mainly in the traditional heartland of China’s aluminium industry. Is this the start of a new shift towards entering the global market on an equitable basis? Can we expect to see primary metal imports grow to the volumes predicted a few years ago?
We expect a lively debate on these and other issues. We will be making more emphasis on roundtable discussions, rather than one-way PPT presentations. We also have a fun event planned that will allow you to experience Beijing like you never have before.
The 2014 conference is sponsored by:
The focus for base metals and aluminium will be on China in the coming years, even more so than ever before. However, as China deals with structual change in the next 5 years, growth will slow compared to previous years. Yet that growth is likely to come less from exports and more from private consumption. The expansion of private consumption-led aluminium use, such as automobiles, consumer goods and packaging, will be an interesting area to watch. Essential infrasture building blocks such as power grids and electrical cables will also see an increase in demand due to government funding of intiatives such as the National Smart Grid program. The service sector in China will also be an area to watch in the next 5 years.
Overall, is our view for the outlook of China’s aluminium industry postive or negative?
Those of you who have purchased our 5 Year Outlook for China’s Aluminium Industry report already know the answer! If you have not yet purchased this 130-page indepth report, contact us today.
The 5 Year Outlook for China’s Aluminium Industry is the most comprehensive work available on the subject. For pricing information and detailed table of contents, email email@example.com.
Reuters published an article a day or two ago that China’s industrial capacity utilization reached a 3-year low in the first half of 2013 and there is a tremendous amount of total capacity standing idle in China. One of the “bloated sectors” mentioned was aluminium. According to our BDM report, China’s smelters will have over 31Mt of capacity by the end of 2013 while production is expected to be around 24Mt. This 31Mt of capacity is estimated to have a utilization rate of 77% which is only slightly higher than the 74% average capacity utilization rate of industries in China.
Considering that over 63% of China’s smelters are operating at a loss based off of theoretical cash costs, some of these high-cost smelters will have no choice but to close in the next few years unless the aluminium price greatly rebounds. In the meantime, new capacity in Xinjiang, where there are lower power prices, will slowly replace old capacity. Once domestic capacity is restructured to lower cost regions, smelters’ cash costs should return to reasonable levels.
For more information about the China’s capacity and cash costs, email us at firstname.lastname@example.org.
I think it was in TS Eliot’s “Murder in the Cathedral” that Thomas Becket said to King Henry, be wary of chopping too many trees down. You remove the places where your enemies can hide, but leave you defenceless if they attack you.
I am reminded of this after receiving an email from a former worker at Tomago Aluminium, in Newcastle Australia. He complained that management had seen fit to trim 100 workers from the operations, in the belief that new young technical people could do just as good a job as the older hands. The consequence has been rising iron levels, unstable pots, anodes not performing well, and a myriad of other problems, all leading to an unstable situation.
I am not picking on Tomago here, though it may seem like it. My point is that it is a common cycle in the industry. How many times have we seen this before? Metal prices are low, so management trims costs in one of the few areas they can – head count. It’s true that operations management has little influence on the cost of electricity or alumina. Experienced hands, especially technical people, get a good salary, so they are always top of the list when it comes to cutting costs. And let’s face it, this is what managers have to do, simply to justify their own presence. If they can’t show decent cost cuts, then the next manager above will cut them.
And it’s easy to justify the cut. The pot line is stable, things are running well. We have head office, or the technical centre to fall back on if something goes wrong, but what can go wrong? It’s a steady state process – alumina and electricity in, liquid metal out. If everyone does their job properly, we will be fine.
Famous last words.
Aluminium smelting can be done in a very controlled, steady state process in a laboratory, for a little while. But out there in the real world, life is not a test tube in a laboratory. Workers can fall behind with their pot tending duties. A batch of anodes could have a slight variation in properties. A mechanical problem in the cast house could cause liquid metal transfers to bank up. I can name numerous possible snafus, and I am not even a technical person.
Ask a technical person, and they will tell you, it’s a black art. Getting the balance right is hard – balancing thermal, electrical, mechanical and chemical reactions all at the same time is not easy, especially at the amperages and size of pots and smelters that we see today. But keeping that balance right is much more stealthy. And it is vulnerable to the attacks of HR specialists and those who keep playing with the structure and size of the technical team.
When metal prices are low, as they have been for the last two years or more, aluminium companies do everything they can to reduce costs. But these actions seldom have any consideration for the longer term. Tomago isn’t the only plant having operational problems, and it isn’t the only plant to have cut the very people who could have saved it. It’s too easy to sit in board rooms and make decisions without the real on-the-ground knowledge of the consequences.
One wonders whether the recent problems at Ma’aden can be sheeted home ultimately to a board room somewhere.
The irony is, those same technical experts who weren’t listened to when they were employees, can now charge thousands per hour to be listened to as consultants. Although some of them tell me, even then the plant management doesn’t listen to them.
Postscript – thanks to former colleague Peter H, the bearded one, who as Technical Manager had the same complaints 10 years ago, though back then I didn’t listen to him. Those who know him know who I am talking about.
I was reading Lloyd O’Carroll’s monthly aluminium report this morning, when a comment of his caught my eye.
Lloyd has pointed out that net aluminium trade this year is lagging 2012 quite severely. To the end of last year, China’s net primary aluminium imports stood at 391,000 tonnes. To August this year, it was at 88,000t. Lloyd believes that the level will drop further in 2014 as more of the huge smelters in China’s Northwest come on stream (although LLoyd also declares the arbitrage window open at the moment).
It doesn’t seem that long ago that some analysts were declaring that China would be a huge net importer. One commentator got up at the 2011 Antaike conference and declared that China’s imports would be at 4.8 million tonnes by 2015. The Superbulls were on Red Bull, it seems.
For the record, AZ China disputed those claims back then. In our 5 year outlook of 2011, we declared that China would have a tiny net shortage of metal by 2015, less than one week’s supply.
I am a follower of Reuters Correspondent Andy Home. Andy writes about the base metals market, and has the knack of being able to sum up situations with a fair but sometimes slightly acerbic turn of phrase.
So I took note of 2 pieces that Andy wrote in the last few days. In one, he raised the subject of the rise of Aluminium Ambassadors, after Oleg Deripaska was named an Aluminium Ambassador at a recent conference. In another piece a couple of days ago, Andy wrote of “the aluminium crisis”. It was his description of the turmoil surrounding the LME in the light metal’s market. Aluminium is weighed down by warehouses full of the stuff, producers who can’t make any money, finance companies playing both ends of the market, and the quasi regulator, the LME, mired in debates about its proposed new rules.
It is an interesting juxtaposition. Here is a crisis in a global market, played out in slow motion over months and even years now, and with no light at the end of the tunnel. And on the world stage we have people claiming or being given the mantle of “ambassador.”
But is it a time for diplomacy, or are we about to go past that stage? As in crises such as the world has seen in the Middle East and sometimes in African nations, there is a time and place for talk, but sometimes more direct action is needed.
The LME’s proposed new rules are still a few months off being brought into play, but the tough talk from companies like Alcoa and Rusal, and the defensive postions being taken by some of the players in the warehousing game, indicate that the time for talk will end soon. But the coming war will not be a war of aggression, expansion or first-strike positioning. Rather, it will be a war of attrition. Only the fittest, toughest and most determined combatants will survive. There will be many casualties, but I fear most of the casualties will be on the side of the producers. In the next 9 months, it’s likely we will have several deaths in the global smelter population.
And no amount of diplomacy from even the best ambassadors will prevent this bloodbath from occurring.
I will provide more in-depth analysis to AZ China clients in our next Client Briefing Note. If you aren’t a client or subscriber, contact us for more information on how to subscribe.
We have been warning of the problems inside China’s official production data for the last 3 or 4 years. But here’s further proof of the “wackiness” of the numbers that come out of China’s National Bureau of Statistics and the China Nonferrous Industry Association.
Aluminium smelting is a steady-state process. There are no moving parts like in a widget factory. Electricity and alumina are poured into a bath and pure aluminium forms on the bottom of the bath. The only batch part of the process is that the workers remove the metal from the bottom of the bath on a cyclic basis, tapping each pot in turn.
So a normal operation will turn out roughly the same amount of metal per day. Multiply that by 130 for the number of smelters in China, and you can get a pretty good gauge of how much metal is going to be produced. The only major corrections to that are if a potline is idled, or if a line is started up. And a start up is usually a slow process over several months, while a closure can be in hours (but only by accident – no plant would willingly allow hundreds of pots to freeze over all at once.)
This chart shows the % change in the daily run rate from month to month.
I am no statistician, but this pattern makes no sense. In particular, 2013 seems to be a time for turning up the “crazy dial”. So far this year, we have had minus 10%, plus 8.8%, minus 9.4%, a couple of quiet months, then plus 7.8% followed by minus 3.4%.
In the period shown in the chart, China’s aluminium production has grown from 45,000t per day to 60,000 tonnes per day, so a growth of 33% in 3 and a half years. But clearly, if you believe the data published by China’s authorities, it has been a case of the “Chinese Waltz” – where the dance moves are chosen randomly.
And this is just the reported production. There’s another 10% of China’s aluminium production doesn’t even get into the official numbers.