Category Archives: Aluminium

Zoo news – Dick Evans takes the helm at Noranda

Written by Paul Adkins

Aluminium industry Icon Dick Evans has been appointed chairman of Noranda Aluminum, replacing Bill Brooks.

Dick was the man in charge at Alcan from 2005 to 2007, and was on the other side of the table when Rio Tinto negotiated the purchase of the Canadian company.  Dick then went on to be the first CEO of the new Rio Tinto Alcan.

I interviewed Dick in January 2013 for this blog.   It is interesting to look back at what Dick said then.   His assessments were spot on.   In today’s aluminium world, when we are dealing with so much metal leaking from China, one could argue that it’s not unlike 25 years ago when Russian metal was flooding the market.   Dick’s view about that was that the industry worked its way through the crisis.

Dick has been a director of Noranda since 2010.

Fraud! Fushun employees allege missing millions

Written by Richard Lu

Employees of Fushun Aluminium in Liaoning province have alleged that salaries and compensation they are owed has gone missing.

The company, a downstream producer independent of the smelter of the same name owned by Chalco, went into bankruptcy in 2010.   As a result, many employees were forced to give up their jobs and were re-hired on a contract basis.   At the time and according to the claims by the employees, they were promised compensation for their loss of jobs and salaries.  The promise hinged on a government bail out of RMB1 billion.

When the bail out came, some 3600 employees – all of them still on permanent employment status – were paid their overdue compensation.   But the remaining 5000 employees say they received nothing. According to these workers, some RMB 500 million, about half of the bail out money, went missing.

These employees have been waging a media war ever since, trying to attract attention for their case.   They allege that the local government SASAC, the body charged with overseeing State Owned Enterprises at the local level, were part of the fraud.   The workers claim they have a recording of a SASAC employee admitting that fraud took place, but refusing to say where the money went.

Neither Fushun Aluminium nor the Liaoning SASAC office have commented on the claims.

For the record, Chalco owns Fushun aluminium smelter, but these claims are all to do with Fushun Aluminium, which is separate company not involved with Chalco.   Liaoning province is in China’s north eastern corner.

Under Chinese Labour laws, employees can only claim compensation or overdue salaries if they make an individual case.   The law forbids employees from forming a group (read “union”) to make their claims.


And still supply keeps coming…

Written by Paul Adkins

At the base of all the talk of Chinese semis exports, government subsidies and sluggish prices there is one core truth. New Chinese metal units keep on coming.

Consider what is in store in the next few weeks alone:

  • Xinfa’s smelter in Xinjiang province will start rolling out their next phase of capacity. They will bring another 92 cells on line, each running at 400KA, and by August when this rollout is completed, the smelter will hit 1.9 million tonnes capacity.
  • East Hope has a similar story, with another 300KT coming on line in the next few weeks, and bringing their new plant to 1.2 million tonnes.  They have another 600KT due to be finished construction by the end of this year, with rollout commencing at the start of 2016.
  • Jinlian is rolling out 90 cells in the next 2-3 weeks, for an additional 100KT, and another 90 in July.

We estimate there are at least 10 plants due for completing construction in 2015.

It’s worth looking at the Xinfa smelter in a global context.   The aluminium world usually points to the EMAL smelter in the Middle East as being the biggest single site smelter in the world.   It runs to 1.35 million tonnes.   Xinfa will be around 50% bigger than EMAL when it is finished in a couple of months.

But the new Jinjiang smelter in Inner Mongolia trumps even the Xinfa plant.   It will have a total capacity of 3.0 million tonnes when it is completed. That’s one seriously big plant!

AZ China publishes a monthly Pipeline report, which details all these projects.   Contact me if you are interested in subscribing.


China aluminium – global proportion growing

Written by Paul Adkins

China produced almost 2.6 million tonnes of aluminium in April, according to the International Aluminium Institute.   That puts China at a daily rate of 86,200 tonnes per day for April, compared to 78,700 tonnes in January. So China’s aluminium production has risen almost 10% so far this year.

In contrast, the Rest of the World (RoW) has gone from 71,000 tonnes per day in January to 71,500 tpd in April. Even this tiny increase is a little surprising in an environment where companies like Alcoa and Rusal have been cutting capacity, but countries like Malaysia and India have been increasing output while others cut back.

The net result is that China is now nudging 55% of global aluminium production. There’s few other global commodities where one country dominates global production, and it’s lucky for a balanced market market that China consumes almost as much as it produces.   Too much variation high or low would ruin the market for the world. But there comes a tipping point where China starts being so dominant that it becomes a problem for a metal that is used across the globe. It is hard to say where that tipping point is.   Is it 60%?   65%?   70%?  I don’t know, but once one country moves to an almost monopolistic position, it’s surely a problem for a balanced market.

China has moved from 52% of global production to 55% in the space of 4 months.  Where will it be by the end of this year?   (Hint, read the next World Aluminium Monthly to find out.)

It pays to check

Written by Paul Adkins

It pays to be careful when reporting announcements from the Chinese government. Take the recent announcement on tariffs as an example.

That announcement caused a great deal of upset around the aluminium world. Then someone reported that in addition to the rods and bars that were mentioned in most news stories, a third item had had its tariff removed as well. Someone reported that unwrought aluminium alloys were to have their 15% tariff removed. That got people even more upset, including one well known bank, who issued a note to their clients that showed how a flood of additional metal would leak from China because of this.

Then in the last couple of days, America’s Aluminum Association issued a statement criticising China because it “removed a 15pc export duty on unwrought aluminium alloys and a 5-15pc duty on bars and rods of alloyed and non-alloyed aluminum.”

There’s only one problem with the AA’s press release, and with those who also ran this story or advised their clients. It’s wrong.


The problem comes down to the simple fact that there are two products under the Harmony Code 76012000. One of them is “Low alkali refined aluminium alloy (Na+K+Ca<10ppm, H<0.12ml/100gAl)”, while the other is “Other Unwrought aluminium alloys.”

The announcement on April 23 removed the 15% tariff on the first item, but left the second item unchanged.  I am told the low alkali product is used in cable manufacturing, specifically ACSR, which is a steel-reinforced cable with an aluminium core.

It’s an easy mistake to make.   The list of products that were covered in the April announcement went for several pages, and it followed the pattern of the previous tariff announcement, made back in December. In the December announcement, both products were identified, and both had their tariffs reduced from 30% to 15%.   In the April announcement, only one of them was listed.   I have the Chinese originals (in PDF) and a translation if anyone wants to see them.

It may seem a small slip to make, and it is, but the ramifications can be embarrassing for those who go public with criticism of China, or who warn their clients with words like the following:

“And what can we expect from aluminium alloy? We think that the immediate impact will be more significant for aluminium alloy exports. This is a trade flow that is far larger and more established and, hence, in our view will be easier to ramp up.”

It’s not unlike what happened last year, when a Houston-based petcoke consultancy published a story about Shandong province cutting aluminium production.   They had relied on an English translation of an announcement from the provincial government, but the translation mistook “limit capacity to…” to mean “cut capacity to…”.   The consultancy published the story totally oblivious to the fact that their story was completely wrong.

If your analyst or bank or consultant is telling you that this or that is happening in China, check where he is getting his facts from.  Is he using primary research, or other people’s press releases?   Is he relying on someone else’s translation from Chinese, or is he getting back to the source documents? Look at his charts and his footnotes – what does he list as his sources, and who does he acknowledge?

 Or better yet, contact AZ China so we can tell you what’s really happening inside China’s aluminium industry.

PacAl part II – one thing that won’t happen

Written by Paul Adkins

We discussed in the previous post that Rio Tinto has put its Pacific Aluminium asset up for sale, with a reported price tag around US$1 billion.

Here’s one thing that won’t happen.   Given the history of 9 months ago, one thing that won’t happen is for Ivan Glasenberg to pick up the phone and call Sam Walsh.

It was about 8-9 months ago that Glencore tried a tilt at Rio Tinto, an unwanted advance that was rejected out of hand, forcing Glencore to count 6 months before they could have another go.   That time period expired in April. By all reports, the unwanted marriage proposal left some ill-feeling behind, and the two king pins are more like kings on a chess board, keeping well away from each other.

Some insiders say that it was Glencore who was in the frame back in 2011 as a possible buyer of the PacAl asset.   The anecdote goes along the lines that on the sidelines of an MB conference, Ivan Glasenberg and Jacynthe Cote had dinner together, and in that dinner, Jacynthe asked Ivan how many billions he thought PacAl was worth.   Ivan’s answer was reported to be “none.”

Whether that anecdote is true or not, last year’s play on Rio has meant that Glencore and Ivan Glasenberg are probably not ever going to be invited to discuss PacAl over a cigar and scotch.

Rio to put PacAl up for sale again

Written by Paul Adkins

The Financial Times has reported that Rio Tinto is putting its Pacific Aluminium asset up for sale – again.

Rio first tried to sell the business in 2011, but canned the idea in 2013, when nobody came anywhere near the price tag on the assets at that time.   Rio’s view, according to the Financial Times, is that the market conditions have changed sufficiently, and their price expectations have reduced enough, to make a potential sale a better proposition.

According the article, the price tag this time will be around US$1 billion.   That’s a big retreat from the first tilt, when the price tag was rumoured to be somewhere between US$6 billion and US$9 billion.

But has Rio got its timing wrong again?   First time around, aluminium was not worth investing in.   The world had come to the realisation that China would not be a huge net importer, and investment plays such as Rio’s purchase of Alcan were shown to be wildly wrong.   Aluminium prices had peaked mid 2011 at around $2150, but slid through 2012, finding a floor at $1850.   Delivery premiums at that time were much lower back then, so the all-in price was still tracking in the very low $2000’s.

Today, the LME is still around $1850, but premiums are a stronger, though nowhere near where they were.   So we have an all-in price of about US$2200 – marginally better than when Rio tried to sell PacAl the first time. But this time, the prospects of an LME price recovery are much lower.   Why?   Because of all the metal leaking from China.   To put it simply, any time the LME gets too far ahead of the cost for a Chinese trader to export at a profit, that’s exactly what that trader will do.   We are now entering a period where the LME price will be tethered to the Shanghai price. And with Shanghai price set to remain low, thanks to severe over-capacity and continued support for loss-making plants, the Shanghai price has little prospect of getting much further from where it is now.

So PacAl as an investment will not benefit from a strong LME price.  There had been talk 3 years ago that companies such as Glencore were interested in PacAl for their premiums.   The argument was, as long as their costs are reasonable, Australian smelters (where most PacAl assets are) would be able to supply Asian markets and enjoy healthy premiums. But that argument no longer holds true.  Asian markets are set for lower premiums, thanks to the flood of Chinese metal.   And not just Chinese metal – India is now becoming a net exporter.  Availability of metal is the single most important criterion for the premium price, and with plenty of metal, premiums will suffer.

Frankly, it looks like Rio’s timing may be off by 12 months.   If they had gone back to the market before we knew about the flood of Chinese metal, they might have attracted a buyer.

So why now?   It makes me wonder if the rumoured talks with Alcoa have perhaps collapsed.  This is total speculative on my part, but if there were talks about a merger of smelting assets, there would be no point in trying to sell a $38 billion asset for $1 billion. But recently we have seen Alcoa announce they were looking to close an additional 500,000t of capacity, and now Rio looking to ditch PacAl. Perhaps Plan B is off the table, to be replaced by a revisited Plan A.   (Or they are floating a balloon to put a fair market price on the asset ahead of more talks.)

Shanghai aluminium price v. inventory – magic?

Written by Paul Adkins

price v inventory









This chart is from one of AZ China’s regular weekly reports. It is pretty clear what this chart is reporting – for the last month, Shanghai aluminium prices have been rising  even as metal inventory is also rising. Further, the same trend has been evident through all this year, except that prices have been a little more erratic than inventory movements.

But stop and think about this for a minute. If inventory is rising, why is price also rising?   Shouldn’t the price fall as more stocks become available? Is this yet another case of Chinese markets defying the gravitational laws of market economics?  Magic perhaps?

Before we go into the reasons for this, there is one other data point that we can derive from this chart. We know that aluminium demand in China will run to about 29 million tonnes in 2015.   Taking that to a daily rate, with some rounding, we can say that China consumes about 80,000t per day. The highest point on the inventory data shows 280,000t, so that means that Shanghai has about 3.5 days of inventory.

Seems a bit short?   Compare that to the Global Days of Supply numbers published by respected industry expert Lloyd O’Carroll. According to his latest report, this number stood at 40 days, while his famous “etch-a-sketch” chart shows the number to be north of 60 days, after excluding finance metal.

Why is China so different?

There are several reasons. There is a lot of metal in China which is tied up in a Chinese version of finance deals – metal held as collateral against operating loans.  There is a percentage of aluminium production in China which is not sold through Shanghai for various reasons.  Consider the sell-side consortium established by Chalco about 3-4 months ago.  Some other producers simply don’t bother to register their metal in Shanghai. And there is that nemesis of analysts and commentators – invisible inventory. That is, metal which is held off the books by traders and other players.

Note that all these factors are relative to the inventory side of the chart; none of them relate to the price side. What that means is that the Shanghai price, while it is a benchmark price, is not representative of all metal sales in China.

It also means that factors and catalysts that could impact price, up or down, are effectively hidden from view.   In the West, we can see production, we can get a handle on producer stocks, and we have some rough idea of how much metal is tied up in finance deals.  But even this vague visibility is not available in the China market.

We will be discussing this some more in our World Aluminium Monthly, which is due out soon.   Don’t miss out.   Write to me at for more information about subscribing.


Colliding universes – be careful what you wish for

Written by Paul Adkins

It seems hard to believe that less than 24 months ago, Alcoa President Klaus Kleinfeld was complaining that China’s aluminium smelter sector is “living on a different universe.”

Back then, he was right.  China seemed to be operating independently of the rest of the world.  While companies such as Alcoa and Rusal were making the tough decisions to close capacity, the Chinese were adding new plants almost every month. For analysts, it meant that when looking at supply and demand figures for future months and years, one had to separate China from the rest of the world. We all talked of RoW as being a different entity to that of China.

Instead of separate universes, we now have colliding universes. The world that is China aluminium has come into contact with RoW, and for as long as the two are connected, metal is flowing in one direction only – from China into RoW.

Do you remember those little desk toys, a little chrome metal stand with four balls hanging together? When you pulled one ball back and released it, the resulting pendulum swing would cause the other balls to swing backward and forward.  That’s a little like what we are seeing today, except the movements are at glacial speed (and there’s only 2 “balls”, not 4). China and RoW have been in collision mode for almost 12 months now, though they are starting to pull away. The pendulum force is coming from price arbitrage – the spread or difference between the all-in price in London and the cost of getting metal to export markets from China.   As the spread narrows, less metal will leave China, since there’s no money in the trade. But less metal from China means that once existing inventory is sold through, the pendulum starts moving back, with higher LME prices and lower Shanghai prices. That’s a recipe for more Chinese metal to come back into RoW, as the two worlds collide again.

A little like that desktop toy, we are stuck in a potential pendulum movement.

It means that analysts and commentators can no longer segregate China metal from their analysis of RoW metal. We at AZ China have already modified our Supply-Demand balance, to reflect this reality.

Mr Kleinfeld was complaining about the Chinese when he made his famous comment about different universes. His wish was that the Chinese would join the rest of the world, though he was no doubt thinking in terms of them making capacity cuts. This is a wish that in hindsight proves the old saying – “Be careful what you pray for”.

(Australian music lovers will know the Paul Kelly song of the same title.)

Premiums – the beginning of the end?

Written by Paul Adkins

Delivery premiums in the aluminium industry have had a volatile life in recent years.  Originally meant to be nothing more than the “Postage & Handling” item you see on your invoice from Amazon, premiums went from being an irksome minor item to a major part of the cost of buying aluminium.  More recently, their star has faded, falling from giddy heights last year to today’s levels.

Their performance could be compared to that of a dying star, shining brightly before fizzling away.

In this month’s World Aluminium Monthly, I argue that premiums are becoming less relevant, and that published premium data may eventually become a “negative benchmark” – the ceiling of the actual price a buyer must pay.

If you think I am off the mark, consider this – an increasing amount of metal is leaking from China.  Large amounts of metal are finding their way to places like Malaysia (where we are hearing of factories that have completely shifted their supply chain to Chinese fake semis), Vietnam, Indonesia, South Korea and more recently in India, Brazil and Europe.  This metal is being traded on a position basis – sellers position the price at a point below what the customer must pay if he were to buy from LME/Shanghai, while ensuring that the seller doesn’t get left holding too much metal if prices swing in the wrong direction.

The role played by premiums in that scenario is marginal at best.  Of course there’s a delivery cost, but both sides know that, and know how much it is.  Both sides know the all-in price in London and Shanghai. Both sides know the origin of the metal.

But there’s a greater danger in this.  It’s a danger that could see folk like Platts in danger of losing relevance and therefore clients.  I will explain why in this month’s World Aluminium Monthly.

If you would like to subscribe to the World Aluminium Monthly, simply complete the contact form below.  The next edition is due out in a couple of weeks, so don’t hesitate.


Footnote: Despite my 4 years of Latin in High School, I have succumbed to “premiums” instead of “premia”, as has most of the rest of the world. Sigh, my old Latin master must be turning in his grave.