Category Archives: aluminium

China: 90% smelters were at a loss in Q1 2014

Written by June Wang

As the curve below shows, the highest cash cost of domestic smelters was RMB16,900/t and lowest was RMB10900/t.  As of 28 March 2014, the SHFE spot price was RMB12845/t. With the aluminium price sliding through the quarter, nearly all the smelters were under extreme pressure.


Only 7 smelters finished the quarter under the SHFE spot price line.

From the beginning of 2014, aluminium prices continued down due to worries about the oversupply and the economic conditions in China. In addition, the government emphasis on policy implementation, such as tightening credit, tiered power pricing added more pressure, and in come cases sliced their already thin margins.

As of 17 April 2014, the cuts to production have reached 1,375 kt, with 490kt  in April, although prices have now stopped falling and seem to be recovering slightly.

We will likely see more production cuts, despite the improving price, as the depth of losses is still too great for many.

For more information about China’s Cash Cost Curve, please contact me at AZ China.

MIIT names aluminium companies meeting “Aluminium Industry Norms”

Written by Yuan JI

China’s Ministry of Industry and Information Technology (MIIT) issued its “Aluminium Industry Norms” standard in July 2013, which modified and replaced “Aluminium Industry Entrance Conditions (2007)”. The document focuses on layout and scale, product quality, technology and facilities, energy consumption, resource utilization, environment protection, production safety and social responsibility. In modified norm, MIIT provides clear and specific indicators for measuring.

After several months, MIIT has announced the first batch of companies that meet the new norms. In all, 36 companies (40 projects) are listed. Of those, 26 are aluminium smelters with 9.55mt in total capacity, accounting for 30% of national capacities. On the list, 79% of capacities are state-owned, such as Jiaozuo Wanfang, Gansu Hualu, Huanghe Xinye, while 21% belong to private groups, for instance Qinghai Qiaotou and Shandong Yili. Some 70% of qualified capacities are located in Henan, Inner Mongolia, Qinghai and Yunnan provinces. As for technology, state-owned companies apply technology in the range of 160ka up to 500ka, while those private companies on the list employ technology ranging from 230ka to 400ka.

The 2nd batch will be announced later this year.

Companies that meet this standard are somewhat protected from some of the edicts regarding over-capacity, mainly because the attack on over-capacity has focused on inefficient, outmoded plants and technology.   On the same token, to date none of the plants that have shut down this year have shut because the government told them to.   All have cited the harsh economic conditions and low metal prices.

China’s 7 trillion RMB stimulus plan

Written by Richard Lu

Along with the possibly weaker Q1 GDP growth figure, China’s news media has been focusing on the government’s “Steady Growth” strategy recently. Several provincial governments have released local stimulus plans, and when added together, these individual programs amount to 7 trillion RMB.

You might wonder whether those stimulus plans will be fruitful or not, whether they are the same as last 4 trillion stimulus package or not, and whether these programs will lead to the same problems that originated in 2008′s package. The key points in the government’s plan go some way to answering those concerns.

1. China won’t tolerate a hard landing, and doesn’t expect one, so stimulus plan must be applied to keep the economy growth.
2. Investment will remain the major momentum in driving China economy growth.
3. 7 trillion investment refers to key project investment in 5 province including Guangdong, Hainan, Tianjin, Jiangxi, and Guizhou.
4. Different from the last 4 trillion stimulus package, this 7 trillion won’t be invested instantly but gradually injected over several years.  The growth rate for those key project investments in 2014 is only about 11%.
5. The investment will be centered on railway network expansion, shantytown redevelopment and tax cuts for small companies.
6. With the heavy local debt, more private funds will be introduced into the investment.

It’s anyone’s guess to what extent these programs will be successful or not, but if they can be implemented as pronounced without any delays, it would be good news for commodities including aluminium.

According to a Forbes article, China’s railway network will reach 120,000Km in 2015, but is still a long way behind countries such as the USA.  With a great increase in railway network length, and more pervasive aluminium alloy applications in high speed train and rail cars, aluminium will be very likely well consumed by this sector. Shantytown redevelopment will build another root on commodity consumption, so coupled with other similar infrastructure projects, current over-capacity of aluminium will also be somewhat relieved. Perhaps the impact would not be big enough to ease the glut completely, but we could still expect some support on aluminium price from this positive news.

We will monitor the progress of these programs, and their impacts on primary aluminium.

Xinfa, the unique

Written by Richard Lu

Both SHFE and LME aluminium prices have hit historical lows recently. As a result of the continued subdued prices, many smelters inside and outside China are forced to consider, plan or implement curtailments. However, Xinfa, the third largest aluminium company in China, has announced a 550KT new expansion at its Xinjiang smelter. Its odd action definitely distinguishes Xinfa from the others and makes it unique in the aluminium industry.

Xinfa is betting the market will pick up eventually, once enough loss-making smelters retreat from the market, putting it in a position to reap the benefits.

But how can Xinfa afford to do this, especially in today’s environment? Probably an anecdotal story can give some hints. Looking back to 2004, Xinfa took the risk of building up its first production lines, which required 1.5 billion RMB initial investment. Financing that amount of money through loans didn’t make any sense at that time, because the government was very conservative on aluminium projects and no bank could support the project on its own. Mr. Zhang Xuexin, the CEO, boldly decided to finance the capital internally through Xinfa’s employees with a daring proposition, namely 50% return rate per half year.

The internal financing motivated the employees, and coupled with the right judgment on the market, Mr. Zhang soon delivered his promise successfully.   Today, Xinfa is recognised throughout the Chinese aluminium industry as the most successful, and soon to be one of the largest.

According to our estimates, Xinfa’s total capacity will reach more than 3 million tons per annum after the expansion and will rank them as No.2 in China’s primary aluminium industry, just behind Chalco. However, compared to under-performing Chalco, we could see Xinfa can become the leader and icon of China aluminium industry in future.

Other assets controlled directly and indirectly by Xinfa, both upstream and downstream, are also performing well. So let us keep an eye on its development and verify if it could become the industry leader. For me, I stand at the bullish side.


Rollout of tiered electricity pricing for China’s aluminium industry

Written by Yuan JI

Following Beijing’s guidelines about tiered pricing for China’s aluminium industry, some local governments have published and started to conduct local implementation plans. Although we expect limited impact on the industry, which we posted in another blog, the implementation plans can promote industry upgrading to a certain degree.

Shandong province, with aluminium capacity of about 5.6 million tonnes, issued a notice that the local government will collect the data of volumes of liquid aluminium and corresponding electricity consumption annually, to determine AC consumption and relevant electricity pricing. Hubei province, with current aluminium capacity of 378kt, has issued a similar notice.  Gansu province started to implement the central government’s guideline as well. At the same time they asked all local authorities to find the best ways to support local enterprises’ technical upgrading and reduce electricity charges.  Urumqi government issued a notice on tiered pricing. In Urumqi’s case, they have allowed for 90% of the increased cost to be returned to smelters in the form of funding for technical upgrades, to reduce electricity consumption.

We will keep watching on the individual smelters’ electricity payment standards which should be published soon on local government’s official websites. If the local extra electricity charges are used on enterprises’ upgrading, it is a positive for sure. But it still loads smelters with additional cost, at a time when market prices are low, and gives them funding that doesn’t help them in the short term.

It is also worth noting how the local governments go about checking electricity consumption.   There is a huge team of technical and accounting experts who are assigned to each smelter.   This team conducts almost a full audit of the plant, stripping out downstream electricity consumption, and examining a year’s worth of pot performance data and other operating characteristics.   The finished audit will be a treasure trove of performance data.


China aluminium capacity deaths and births

Written by Paul Adkins

Two more aluminium smelters in China announced they were cutting production this week.

Chalco’s Guizhou smelter will cut production further in April, taking out 70,000t. The company has declared that if aluminum prices remain low in the next month, the plant will close totally.  Right now the operating capacity is 160kt.

Guangxi province’s Baise Yinhai, with annual capacity of 200kt, has cut half of its total production, while the other smelter belonging to the same group, Guangxi Laibin, Yinhai closed last month. The company cited the poor market conditions as the reason for the two closures.

But while smelters in China’s heartland are closing, the big new smelters in China’s northwest continue to roll out more new capacity.   Jiarun smelter in Xinjiang province has announced that it is commencing construction of phase 2 of the plant.   Phase 1 has now reached full capacity, according to the company.   Phase 2 will be the same capacity as phase 1, namely 450,000t.

AZ China’s Pipeline Report (formerly called the Births, Deaths and Marriages report), contains the full picture of plant capacity in China. Regardless whether you are selling technology to the new plants, trying to understand the total market in China, or simply want to keep track of so many smelters in China, you need to be subscribing to this report.   Contact us at for more information.


More capacity idled

Written by Paul Adkins

Alcoa and Rusal each made announcements last week which further constrain the total supply equation for the world’s aluminium market.

Alcoa has announced the closure of 147,000t across two Brazil smelters, while Rusal has announced that it will not go ahead with its planned Siberian smelter.   That smelter would have added an additional 750,000t to the supply side once it was operating in a few years time.

Idled capacity can notionally re-enter the market, though a number of factors have to combine.   The market needs to be sufficiently strong that any metal units re-entering the market won’t drive the price down, either by themselves or across several producers each deciding the same thing.   The plants themselves need to be in good enough condition and with reasonably modern technology to make it worthwhile restarting.   And the plant needs to be able to access its electricity at the same or better price.   Lloyd O’Carroll estimates that only 50% of idled capacity will ever return to service.

Pipeline capacity is a different question, but with a similar outcome.   Once Ma’aden and Kitimat are completed, there are precious few projects around the world.   Recognising that a 4% growth in demand in a market that is running at 25 million tonnes means a new smelter is needed every year just to keep up, the world is facing a future where metal prices are set to rise.

A postscript on the Alcoa announcement – I note that they allocated “$40 to $50 million in restructuring charges” to close the 147,000t in Brazil. Compare that with an allocation of $250 million for the closure of their Point Henry smelter in Australia, which was 180,000t.


To Gala, or not to Gala…

Written by CT

For registered attendants of AZ China’s 4th International Aluminium and Carbon Conference, on the night of Tuesday, May 6, 2014 there is an option: to Gala, or not to Gala? That is the question. 

But what is the measure of our decision?

If our minds long to be entertained, dulled by the weary excuses for conference entertainment we so often see – we say yes! Our pre-dinner traditional Chinese entertainers are as charismatic as they are alluring.

If our hearts yearn for delectable cuisine so scrumptious our watering mouths flood the lands – we say yes!  Guests will dine at 7:30pm in picturesque Houhai, a reclusive lake smack dab in the middle of Beijing surrounded by enticing nightlife.


Diners will be served a scrumptious assortment of seasonal dishes, basted and broiled to perfection.

If our bodies long for an adventure we haven’t had since our misspent youth – we say, why certainly, yes!  A convenient adventure that is; guests will be promptly and safely delivered to and from each stage of the Gala journey and still get back to the hotel early enough for a good night’s sleep before the final day of the conference. If you’re a night owl, you’ll also have the option to stay and kick back at the surrounding neon-lit guitar bars for a lakeside beer or wander around the lake at your own pace.

But don’t be fooled by the guise of just a great meal and environment! The evening has cunningly disguised networking opportunities for the benefit of guests’ business development as well as their enjoyment and relaxation. 

How to get on board the Gala Dinner train?

On the registration page of the conference, there is an added option to attend the Gala dinner.  For those who have already registered and did not check the option but would like to attend, you may pay for the Gala dinner at a later point, although we can’t guarantee available seats. There are already a very limited number of remaining spaces available.  Register soon for a great night in the heart of Beijing!



Unlike this divisive Gala occasion, AZ China’s Gala Dinner won’t be half as awkward!

The LME waltz

Written by Paul Adkins

The LME continues to take one step backward for every two steps forward.

The UK’s High Court of Justice has ruled in favour of UC Rusal and against the LME on the matter of the new load-out rules that were due to come into place on April 1.

The LME’s rules, which were promulgated last year, were meant to rein in the long queues for metal at the major LME warehouses.   Simply put, the rules were meant to force warehouses to deliver more metal than they received, if they had too much metal in storage already.   The warehouses were at least partially responsible for the high delivery premiums that have been prevailing recently – if you want your order to be delivered on time, you had to pay extra to get your name to the top of the list of deliveries.   And who were you leapfrogging to get to the top of the list?   The warehouses’ deliveries to themselves, usually in the form of an order by the owner of the warehouse for delivery of stored metal to a second warehouse in their fleet.

Once the market got used to paying for the “privilege” of getting orders filled, the premiums flowed into all corners of the market.

The repercussions of the High Court ruling will play out over several weeks.   With no need for larger daily delivery volumes, warehouses will continue to charge a full premium, and the producers will be happy to keep that bonus income on their books as well.   That will likely lead to a share price jump for the likes of Alcoa and Century.   It also comes as poor timing for those who have just finished negotiating the quarterly premiums for Japan ( but good news for Japanese buyers.)   If this ruling had come down even a week or two earlier, MJP premiums would have been higher.

The major question is, what will the LME do about the ruling?   Appeal?   Draft new rules?   Give up?   One commentator suggested the LME consider moving to a new jurisdiction, where High Courts won’t find against them.

Another important question is how this ruling will affect law suits in the USA.   These law suits have been brought by those impacted by the warehouses’ behaviour.   If the warehouses are behaving inside the LME rules, it makes the suits more difficult.

The dancing is set to continue for some months yet.




The worst time for aluminium?

Written by June Wang

As of mid March 2014, the aluminum SHFE spot price has decreased to RMB12855/t, down 9% compared with the price at the beginning of this year, and 12% compared to this time last year.  More and more people have lost their faith for the market.

As the chart shows, from last year till now, aluminium prices continued to fall, and now it has dropped to RMB12855/t, a new record.  Inventory increased drastically 75% compared to the previous month of this year.


But is it worst time? There is a famous quote: The darkest hour is nearest the dawn. For the aluminum industry, it is time to change, eliminate the old smelters and start more new ones which can resist high energy costs and adapt to the depressed market. As a market adjustment, more and more smelters had started to cut production because of the low prices and long-term losses.

In addition, government regulations are being established to curb the overcapacity.

So far the capacity which have shutdown this year have reached 815kt, with most of that occurring in March 2014. The main reason was lower metal prices, which lead to deepening losses. In addition, all the plants shutdown have the same condition – they are too old and have high energy costs. Some enterprise have made the decision that they will no longer compete, for example Zhejiang Huadong Aluminum. Some smelters said they will close the old ones but at the same time they will start new plants in Xinjiang province. In our monthly Pipeline Report, we estimate the capacity under construction is 3,800kt, and 40 per cent or so will make a contribution for the market in 2014.   Contact AZ China if you want a complete list of closures.


Company Name

Total Capacity(kt)


Operating Capacity(kt)



Chalco Guizhou Zunyi






Chalco Guizhou






Zhejiang Huadong aluminium





Inner Mongolia

CPIC Huomei Tongshun Aluminium






Henan Shenhuo Group






Chalco Guizhou Zunyi






Guangxi Laibin Aluminum






Gansu Dongxing Aluminum






Shanxi ShengYun






Danjiangkou Aluminum






Chalco Guangxi Aluminum






For the government regulations,  a tiered power pricing scheme to be implemented seriously from the beginning of this year. And the key point is that power prices will remain unchanged for smelters that do not use more than 13,700 kilowatts (KWs) for each tonne of aluminium produced, while those that use between 13,700-13,800 KWs will be charged an additional 0.02 yuan per KW. over 13,800KWs will be charged an additional 0.08 yuan per KW.

Based on our cash cost data, about 40% of smelters are less than 13,700 kilowatts per tonne of aluminium produced. Smelters in the middle band represent about 18%, with the remainder in the top category. About 58% will be charged an additional cost for the tiered power pricing.

With the Shanghai spot price decreasing and banks tightening credit for aluminum enterprises, it will be inevitable that more and more smelters will cut production in the future months of this year.

The curve below showed that, in the Q4 2013, nearly 45% of Chinese smelters were losing money as a result of the sluggish market. And in 2014, more smelters were forced to join in the losing team.


We estimated continued closures in the near future, but it is not all bad for the industry, we will welcome the dawn.