Category Archives: aluminium
AZ China has revamped the Weekly Aluminium Alert recently. We are now providing a market call as part of the service. We are pleased to report that in the 20 weeks since we started making the call, our accuracy level exceeds 95%.
We think this new report is an excellent service to those of you who are in the aluminium market, so we are making a special offer. Buy a 12-month subscription to the weekly aluminium alert, and we will give you one month extra. Pay for your subscription in October, and we will double that to 2 months extra.
That’s right. If you order before October 31, you will receive 13 months subscriptions for the price of 12, taking you through to the end of November 2015. And if we receive your payment on or before October 31, we will extend that an extra month to December 31, 2015. (We will notify you as soon as we receive payment.)
The regular price for the Weekly Aluminium Alert is US$2,000 per subscriber. Discounts are available for multiple users in the same company.
How to take up this offer? Simply send me an email at firstname.lastname@example.org. We will send you payment instructions. You can choose to pay by TT or PayPal or via Bitcoin. (Our e-commerce site is coming soon.)
If you aren’t sure that it’s a great help, or you aren’t sure what it covers, send me a note and I will send you a free sample of the report.
This weekend I got an email from a very respected senior analyst from a competitor company.
He was writing to question my assertion that as much as one third of China’s semis exports are really not semis at all. They are remelted in an intermediary country, then sold as primary metal. By doing so, Chinese entrepreneurs not only avoid the 15% tariff on exports of raw aluminium, but they also pick up 13% of the 17% VAT.
In his email, my esteemed friend told me “I recently visited 6 rolling mills in China, and I found no evidence of what you claim.”
He has fallen for the mistake that so many foreign analysts and commentators make. He takes the lack of evidence available to him as evidence that my view is wrong.
I felt like screaming to him, “Well of course you didn’t find any evidence. Did you expect that they were going to show you? Did you think that you being a “lao wai” would entitle you to access information that is highly sensitive? You think they are going to admit bending the spirit of the law, if not the letter, to a complete stranger? Do you think that visiting less than 1/3 of the population of rolling mills in China would allow you to draw conclusions about the other 2/3rds?”
Don’t get me wrong – this guy is very good at what he does, and he has taught me a lot in the time I have known him. I have the greatest respect for him. And I am not picking on my friend; it’s just that I see this attitude too often from all sorts of otherwise credible experts.
It reminds me of a report put out by a very well known Australian bank a few years ago. The gist of it went, “we have spent 10 days in China, and everywhere we went, we heard the same message. So it must be true.” It is bordering on hubris to suggest that one can glean a clear picture of a complex structure so easily.
I relocated to Beijing in 2005, after dealing with Chinese companies since 1998, and have been involved in the aluminium industry in China since then. Yet I consider myself still an apprentice when it comes to understanding the industry. How a guy based in London or New York can make sense of it is difficult enough, but to base an assessment on the lack of evidence when he was never going to get the evidence in the first place, is a stretch too far.
By the way, I am not asserting that we have indisputable proof of exactly how much metal is in this category. We are working on that, but quietly, and not by sending a foreigner on a 2 week visit. There are much better ways.
Bloomberg has reported that Europe is set to renew tariffs on aluminium foil coming from China and Brazil.
The tariffs were originally installed in 2009, following complaints from foil producers inside the European Union. Tariffs as high as 30% were imposed as a result of the investigation.
These tariffs were set to expire early October, but the European Union says they will remain in place another 15 months while they conduct a new investigation. The new investigation comes as a result of a submission from a group of foil producers inside the EU in June.
Recently IAI released the production figures for August. Monthly production of China aluminum (including China’s estimated but unreported production) climbed to new highs again in August, increasing to 2,277kt, up 9% compared to the same period last year. The figures show that rising aluminium prices helped induce smelters to increase product output after a sluggish first half year, assisted by various subsidies from local governments.
According to AZ China’s research, the growth of total capacity was 19% compared to the same period last month, which was far greater than the monthly production growth. With regard August of 2014, the ratio between total new capacity and restarted capacity is at 2/3, which means more capacity came from current old and restarted smelters then from new builds. After the decline and tougher months of loss leading to widespread shutdowns before June, many smelters took advantage of rising prices to restart in recent months, hoping to recover their earlier losses as much as possible. Overall, previously halted capacities have now almost recovered by August.
In addition, a large proportion of the new capacity that entered the market in August came mainly from the Shandong, Inner Mongolia and Qinghai provinces. All of which have started close to full capacity and are gradually increasing their operational rates. No smelters in the Xinjiang province have come on-stream recently. According to our statistics, nearly 1 million tonnes of annual capacity in the Xinjiang province will come online for production in the coming months.
AZ China has forecast 26.5 million tonnes of production for this year, and based on the current increase in output plus new capacity set to enter the picture, we are confident our prediction will hold true.
Although financial concerns could cause concern for some smelters, the seasonal increase in demand, especially during the ‘golden October’ period should help maintain aluminum prices in the current range, which should stimulate smelters to produce more output. Longer term, as we approach the end of the year, prices are likely to soften slightly, as the market struggles to accept all the new metal. Demand indicators are steady to good, but not spectacular.
Alumina prices are also showing the effect of increased metal production, along with some operational problems at 2 refineries.
One of the most popular questions we have been getting recently is, will China export more aluminium into the growing supply gap in the Rest of the World (RoW)?
It is well known that China imposes a 15% tariff on the export of raw metal, while semi-finished metal earns a refund of VAT, reducing the cost and making it more competitive in foreign markets. So the popular wisdom is that if China increases exports, it will be in semis.
And this is true. But those of you alert enough, will notice that the heading of this post does not carry a question mark.
The key to increasing exports of both raw metal and semis is … liquid metal.
Operational people will tell you that liquid metal is a great cost saving for both the smelter and its downstream customer. Instead of the smelter having to process metal through the cast house, alloying the metal, cooling it, packing and shipping it to the customer, simply send a crucible full of metal at 600° C plus to the factory. It then also save the downstream factory from the cost of reheating the metal. Provided the factory has spent some money on receiving the metal in liquid form, it saves that factory a lot of money on energy.
And liquid metal is how to export raw metal in the guise of a semi finished product. Simply pour the hot metal into a continuous caster, run the metal one pass through a rolling mill and roll it up into a coil. It is now a semi finished good, ready for export as 99.7% pure aluminium. albeit not in a 25kg form as is usually the case.
We at AZ China will be bringing more information on this to our clients and subscribers. Make sure you are on the list. Contact us at email@example.com.
Finally someone somewhere is investing in new metal units. But don’t get your hopes up.
Rio Tinto has announced that it will spend $14.8 million on improvements to its Alma smelter. This smelter, in Quebec province in Canada, is currently rated at 440,000t, and the investment will lift this by 12,000t. So in reality this is nothing more than “capacity creep”, created by tweaking the amps. The plant is of course a Pechiney design, with AP30 cells.
Alma has had a chequered history recently. The plant was at the centre of a union dispute that saw the company cut one third of production at the height of the dispute. It was also the centre of a study launched a few years ago to examine if it could be expanded to 570,000t, though nothing ever came of that study.
Alma gets its name from the town in the Lac St Jean district in northern Quebec where it is located. (Hat tip to Gordon, who corrected my original comment that it was in La Terriere.)
Here’s the latest of what we know about what happened at the Xinfa smelter. Please note, Xinfa have not released this information – we have gleaned it from our sources, so to that extent some of these points will need to be confirmed when/if Xinfa release an official report.
The accident occurred in line 1, not their new line. This line was running at 500KA, according to our information. The accident occurred at the point where the anode bar and the bus bar risers connect. The pot where the accident happened was being brought back into operation, but there appears to have been a gap between the anode bar and the circuit, and that caused a short circuit and an explosion. The accident did not happen in a control box as previously reported.
We estimate there will be a loss of about 80,000t of metal output, based on the fact that only half the 400,000tpa line was affected, and will be out of operation about 2 months.
The market impact is likely to be small. Not just because it’s only 80,000t (about how much aluminium China uses in one day), but because the plant’s customers are mostly in the south and eastern provinces, where there are plenty of other metal sources. We believe no customers will be directly impacted.
Nobody was hurt as best as we can find out.
If the accident occurred at one pot, then it begs the question, why weren’t they able to save the other pots in the line? The official post mortem will no doubt give a full explanation and corrective actions, but what we are hearing is that there were two reasons why they were not able to save the line. Quite simply, the plant had not invested in circuit breaker equipment, and the operators had had little or no training on how do save the remaining pots. Xinfa may dispute this, and we have not been able to confirm this, and anyway, any investigation will be some weeks away from reporting, but that’s what we are hearing from our sources.
We will bring any more information to you as we hear it.
Chalco recently posted its first half results and not surprisingly showed greater net losses than the same period last year. To avoid being de-listed from the exchange, Chalco last year disposed of several unprofitable assets to its parent company Chinalco, but they are unable to do the same in 2014. Therefore, a greater net loss seems inevitable given the weaker metal price.
We agree with the statement made by Chalco’s management in their interim report that the loss is mainly thanks to the low metal price. Merely looking at the primary aluminium sector, Chalco produced a total of 1.63 million tonnes in the first half, down by 19% YoY. Meanwhile the Shanghai 3-month future price declined by 10% on average which resulted in a 27% contraction of revenue and this is just in line with the reported number. Chalco management advocated that they took lots of measures to control the cost and lead to a 3% saving on producing aluminium. So far, we think the loss sounds reasonable and the retreat in volume and price is the major cause for the disappointing performance. However in contrast, Hongqiao Group gained a 28.6% increase in revenue over the same period despite gross profits dropping by 4%.
We are not accusing Chalco of being complacent in turning the company around, especially considering the increased burden of having more obligations for social stability etc. than its competitors. Rather, we are hoping that Chalco will change its mind and attempt to boost development rather than merely control the costs. Alcoa, which was also suffering losses in the primary metal sector actually set a good example for Chalco. To break away from the soft commodity market, Alcoa is moving its strategic center to high-value semi products, which are applied to aero and auto markets and have great potential for metal producers for further development. We admit 600KA technology designed by Chalco is important in cost control and energy saving, but it never provided opportunity for diversification. We would like to see Chalco take advantage of its R&D center and invest more on downstream and make determined efforts to transform its unprofitable assets to produce high-value products. Either way, there is a long way to go.
Looking ahead, we anticipate Chalco will perform better in the 2nd half, given that aluminium prices have been well above 14,250 RMB/t, in addition to the substantial government subsidies. The recovering ex-China demand will undoubtedly continue to assist London prices to go up which will further support Shanghai prices to run at a higher level than the first half of the year. The latest news about Xinfa’s accident shocked the market and will also push up aluminium prices for a while. All the fundamentals are supporting Chalco and its peers, so let us see whether Chalco can pull itself out of the mud.
In recent years, Chinese aluminum production capacity has transferred rapidly to the western region, especially to Xinjiang that has a large concentration of new production capacity. In the first seven months of this year, Xinjiang primary aluminum output was 2.275 million tons, an increase of 89.5%. Compare that with Henan province, the traditional home of aluminium production in China, where output was 1.978 million tons, an increase of 2.9%.
Xinjiang province is now the largest producer of aluminium production, relegating Henan to second place. This is the first time this change of position has occurred in the past 10 years.
Currently, the largest production areas are Xinjiang, Henan, Qinghai, Inner Mongolia, Gansu, Shandong, Ningxia, Yunnan, Shanxi and Shaanxi. The total output for these regions reached 11.7 million tons, accounting for 86 percent of China’s production.
According to sources at the Xinjiang Nonferrous Metals Industry Association, primary aluminum production capacity is expected to reach 6.0 million tons in Xinjiang by the end of 2014.
By the end of twelfth “Five-Year Plan”, Xinjiang will build 6.5 million tons of aluminium production capacity, plus semis processing capacity of 1.2 million tons. The formation of coal, electric power and metallurgy will become one industry chain, creating a value exceeding one hundred billion Yuan.
Xinjiang is set to become the new centre for aluminium in China, and by 2017 will be the largest production centre for aluminium in the world.
Meanwhile, Henan will continue to decline. Its electricity costs are more than 1,000 Yuan per ton higher than that of the western region. It will therefore be under great pressure to engage in industry transformation and upgrading, energy conservation and an Industry-wide turnaround.
Both Shanghai and London prices gained last week. The Shanghai active future contract price (AL1410) closed at 14,330 RMB/t last Friday while the London cash price also hit record highs since March 2013, at 2,058.5 USD/t last Thursday. Strong demand both inside and outside China fueled the improvement of the global aluminium industry.
The decline rate of Shanghai inventory reached over 4% last week, which firmly indicates the tightness of the China aluminium market at the moment. This may support the Shanghai price to range between 14,250 and 14,500 RMB/t this week. However, we still feel the market is overbought for the longer term.
Being one of the essential leading indicators, the HSBC flash PMI came in at 50.3 in August, which is far behind July’s final reading of 51.7. That contraction pointed out the recovery remains unstable and downside risks still remain. Along with more running capacity to inject into the market and transportation having been improved, the supply will fundamentally overwhelm the bullishness of the China aluminium market.
If the price hits 14,500 RMB/t then we feel that’s the opportunity to short, and be ready before the correction happens.