CNPC to develop Xinjiang oil processing capacity

August 16th, 2010

The following story comes from The Peoples Daily, here in China.    This is part of a long-term shift from the east to the west, and could have important ramifications for exporters looking to buy from China.    This announcement presumably means increased coking capacity in the far west, just at a time when the China aluminium industry is also moving west.   Most of the new smelters being built in China are going in the west or south west.

This means that, apart from the Russians, most of us who are looking to buy pet coke from China may find that the inland logistics costs make Chinese coke even more problematic than it already is.   Of course there are plenty of railway lines, but they are busy running coal to the East Coast.

In the next 10 years, the China National Petroleum Corporation (CNPC) will build Xinjiang into China’s largest oil and gas production base, according to Wang Yilin, deputy general manager of CNPC, China’s largest state-owned integrated oil and gas producer.

The region will also serve as and oil and gas reserve base, an important petrochemical base, engineering services support base and an important channel for importing foreign oil and gas resources.

Wang said that CNPC will continue to increase investments and policy support in order to develop the oil and gas production of Xinjiang oil fields to 20 million tons per year, improve the amount of refined oil of Karamay Petrochemical Company to 10 million tons and maintain oil refining and ethylene production in the Dushanzi Petrochemical Company at levels of 10 million tons and 1 million tons, respectively.

The CNPC has accelerated the exploration and exploitation of oil and gas resources in Xinjiang since 2010 and in particular, a number of major projects were launched in July.

On July 14, the CNPC Tarim Large Chemical Fertilizer Project in Korla was completed and put into operation. It utilizes modern chemical fertilizer equipment with the largest land-based single-set production capacity in China and has investments totaling 3 billion yuan.

On July 19, the CNPC Urumqi Petrochemical Company xylene aromatics joint device was completed and tested. It is a 1-million-ton level xylene aromatics joint device, which has the largest single series in the world and investments in it total 3.7 billion yuan.

At the same time, the CNPC South Xinjiang Gasification Project, which officially began construction in Kashgar on July 14, has attracted much attention, and it is expected that in the next two or three years, the pipeline network will cover Kashgar, Hetian and Kizilsu Kirghiz Autonomous Prefecture, involving 25 county-level cities and 21 ranches.

The Xinjiang region has been occupying an important position in the strategy of the CNPC. In the past 30 years, the CNPC had invested over 300 billion yuan in Xinjiang, creating a production capacity of 18 million tons of crude oil, 23 billion cubic meters of natural gas, 12 million tons of ethylene and 20 million tons of crude oil refining capacity every year.

By the end of 2009, the proven oil deposit and natural gas reserves in Xinjiang stood at 3 billion tons and 1.3 trillion cubic meters, respectively.

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Aluminium smelter news

August 14th, 2010

News from around the industry.

UC Rusal has announced that they will resume construction of its Boguchany smelter. Phase one, comprising 147,000t, will commence operations in 2013.

Garmco has shelved plans to build a rolling mill in the Sohar precinct, instead focusing on their existing plant in Bahrain.

A consortium of Japanese investors is looking to take a stake in the part-Japanese owned smelter in Indonesia. The Indonesian government has been looking to increase its holding in the operation, prompting the Japanese to increase their own position.

Chalco is said to be about to raise its price for domestic alumina, in light of continued strength in the primary aluminium industry. This is despite imports almost doubling in July, from 140,000t in June, to 270,000t last month. The Chalco price for alumina currently stands at RMB2650. The talk is that the price will rise to RMB2800.

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Another view of the Chinalco Rio Guinea deal

August 13th, 2010

This article comes from Business Day.    The article expresses doubts as to whether the Guinean Government will approve and allow the JV partners to proceed with mining the iron ore.  

A rebuff by the Guineans would be a major loss of face for Chinalco and indirectly for the Chinese government.    The latter would like also mark down the team at Chinalco, not to mention marking down the company itself.   According to our information, the last thing that the company can afford is to lose its backing from the Government.   We are told that the company is financing its cash losses via secret payments from the Government.

The article is a little long, but worth reading.

China’s metals giant, the Aluminum Corp of China Ltd. (Chalco aka Chinalco), tied another knot for its future mining plans in the Republic of Guinea with London-based Rio Tinto in a signing ceremony in Beijing today. But Guinea’s Mining Minister Mahmoud Thiam told Business Day this will not deter the government in Conakry from revoking Rio Tinto’s mining concessions in Guinea if the company fails to comply with the mining law and its concession obligations.

The latest move focuses the spotlight of the mining world once more on whether the Guinean government — in transition before the second round of the presidential election next month — is capable of cutting the Gordian knot which the internationals have tied around their lucrative mining concessions. United Company Rusal is hoping that its Friguia and Dian-Dian bauxite concessions will not be revoked, as the government and Minister Thiam (image below) have been threatening, also on account of violation of concession agreements and concealment of income from the state.

In the Rusal contest, Chinalco’s aluminium metals group has so far positioned itself on the sidelines, waiting to see if Thiam or his successors in the new Guinean government will have the political will and personal independence to oust Rusal and put up the bauxite rights for fresh international bidding.

This afternoon, Beijing time, the Chinese and UK companies put their signatures to a pact which calls for Chinese funding of about $1.4 billion to develop the Simandou iron-ore deposit, one of the world’s largest, in the southern corner of Guinea, close to the Liberian border. Today’s release by Rio Tinto claims “the binding agreement follows the signing of a memorandum of understanding between Rio Tinto and Chalco’s parent Chinalco announced on 19 March 2010. The agreement covers all aspects of how the JV and project itself will operate and be governed, including planning, construction and management of the mine and associated rail and port infrastructure”.

Chalco, which is the listed subsidiary of the state-owned Chinalco holding, has also been bilateral negotiations with Minister Thiam, in the event that Rio Tinto’s conflict with the government in Conakry ends in the ouster of the company.

Rio Tinto’s CEO, Tom Albanese, issued a statement in Beijing today saying he expects the Simandou joint venture with Chalco to begin production within five years.

Thiam told Business Day the latest sign of Chinese backing for Rio Tinto will make no difference to the government’s process of revocation of the Simandou concessions. Thiam said he was surprised Chalco would suspend share trading for today’s show of support for Rio Tinto’s position in Guinea, because that position is “unlawful”.

The Gordian knot the Chinese and British companies tied today still leaves them vulnerable, since both have refused to respond to a letter sent late last week by the Guinean government demanding a reply to earlier requests for information establishing Rio Tinto’s rights to the concessions. According to a warning letter from the Guinean Government delivered to Chinalco and Rio Tinto on July 23, and released to Business Day, unless Rio Tinto complies with the government’s disclosure requests and meets the concession terms, the joint venture agreement “will have no legal effect with regard to the Republic of Guinea.”

Thiam told Business Day that Chalco has acknowledged receipt of the July 23 letter, but added there will be no reply after it had been translated. Thiam said no reply has been received in Conakry yet.

Rio Tinto had earlier failed to respond to the Guinean government’s first warning letter of June 23, which was signed by Thiam and by the Guinean Minister of Economy and Finance, Kerfalla Yansane. That letter had requested a copy of the protocol of agreement between Rio Tinto and Chinalco, signed last March; details of Rio Tinto’s spending to date on the deposit; and copies of studies Rio Tinto has completed on the two blocs the company retains at the Simandou site.

The follow-up letter of last week is addressed to Chinalco’s chief executive, Xiong Weiping, and to the Chinese Ambassador to Guinea, Huo Zhengde. “As of today,” the letter to the Chinese says, “the majority of the documents [requested] have not been handed over.”

Rio Tinto told Business Day through a spokesman: “We don’t disclose details of confidential communications with governments. Rio Tinto and the IFC are engaging with the Guinean Government on a range of matters and will to continue to do so.”

Chinalco holds a 9% stake in Rio Tinto after failing to get Australian government and shareholder agreement last year for a $19.5 billion bid for a worldwide joint venture; buying rights for the iron-ore Rio Tinto ships from Australia to China; and up to 18% of Rio Tinto’s shares. The relationship with Beijing then deteriorated, when four Rio Tinto employees in China were arrested in July of 2009, and charged with espionage. They were convicted on lesser charges on March 29, this year. By then Rio Tinto and Chinalco had signed their agreement for cooperation in Guinea. According to today’s announcement, Chinalco (through Chalco and other affiliated companies) has agreed to spend $1.35 billion on development work at Simandou, and also on the proposed rail link to port which is required for the project. Through this project spending, Chinalco would earn a 45% stake in the project, with Rio Tinto holding 50%, and 5% held by the International Finance Corporation, a World Bank affiliate.

Rio Tinto’s relations with the Guinea government have deteriorated badly. The London-based Anglo-Australian mining company began exploring Simandou with a permit in 1998; in April 2006 the company said it had received the right to mine, but this was challenged by the Guinean Government in mid-2008. Thiam told Business Day today the agreement was invalid because then President Lansana Conte had not signed it. Conte died in December 2008, and was replaced by a military junta led by Dadis Moussa Camara and Sekouba Konate. They are in the process of ceding power to an elected government; the second round of the presidential election will be held next month, though the date has not yet been fixed. Thiam has been asked by the opposition candidates and the transition government headed by Prime Minister Jean-Marie Dore to continue in his post until a new government and new minister can be appointed.

Rio Tinto’s troubles in Guinea preceded the appointment in January 2009 of Thiam, a US and French trained investment banker. They worsened when Thiam revoked Rio Tinto’s rights to blocs 1 and 2 of Simandou for failure to meet investment and other conditions of its concession agreement. These blocs were then awarded in July of 2009 to Beny Steinmetz Group Resources (BSGR); Steinmetz is an Israeli entrepreneur with diamond and other mining interests in central Africa. In April of this year BSGR announced a joint venture to develop Simandou blocs 1 and 2 with the Brazilian mining giant, Vale.

Rio Tinto claims the loss of blocs 1 and 2 at Simandou is illegal, and has lobbied directly and through the British Government for a change of Guinea government policy. Guinean officials believe that Rio Tinto has withheld data on the extent and value of the reserves it has discovered at Simandou, and tried to slow down the Guinean development while benefitting instead from sales to China from Rio Tinto’s Australian iron-ore mines.

Thiam told Business Day the latest warning should now focus Rio Tinto and Chinalco on the possibility that they will lose blocs 3 and 4. Exploration permits for these may then be reissued at the discretion of the ministry. “We are not at revocation stage yet,” Thiam said. “They do not have a valid convention to mine blocs 3 and 4 since the presidential decree was not signed. They hold an exploration permit and thus will be faced with another retrocession event in early 2011 if they don’t get their act together. If they continue on their arrogant and defiant path, I am certain the next government will simply revoke their permit.”

Separately from Rio Tinto, Chinalco has approached the Guinean government to ask whether it would be eligible for exploration and mining rights in the event Rio Tinto loses them. According to Thiam, “any deal Chinalco makes with Rio Tinto would not give them any rights to Simandou as it would be deemed invalid by the Government of Guinea.” But if Rio Tinto loses its rights, Chinalco would be eligible to bid for the rights, Thiam added.

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Qatalum suffers 5-hour power outage

August 12th, 2010

This story comes from Reuters. A power outage in a potline is never a nice thing, but an outage while you are heating pots, bringing new pots up to speed or trying to settle them down, is a particularly nasty incident.

It doesn’t say anything in the article, but the most concerning thing for me is, if this can happen once, so early in the life of the smelter, what are the chances it will never happen again?

Norsk Hydro said on Tuesday the Qatalum smelter, a 50/50 joint venture between Qatar Petroleum and the Norwegian aluminium company, had suffered a power failure that would delay its ramp-up schedule.

“Qatalum will not be in full production in 2010. It’s too early to tell when we will achieve that, but the delay is for months, not years,” Hydro spokeswoman Inger Sethov told Reuters.

Qatalum, with a design capacity of 585,000 tonnes of primary aluminium, suffered a sudden shutdown of production, due to a power outage on Monday morning, Hydro said.

Shares in Norsk Hydro fell 4.1 percent at 0746 GMT, against a 1.2 percent drop on Oslo’s benchmark index.

“Power was out for almost five hours, leading to a significant drop in temperature in the reduction cells and making it impossible to resume metal production,” Hydro said in a statement.

The failure affected both the connection to Qatar’s national power grid and Qatalum’s own power plant, it said, adding it would investigate the cause of the failure in co-operation with local authorities.

“We had reached 60 percent of the total 585,000 tonnes capacity,” Sethov said.

The facility has 704 production cells, of which 444 were in production and must be restarted. The remaining 260 cells, which had not been put in production, will be phased in as planned by the end of 2010, the company said.

Analyst Eivind Bergkaasa at Arctic Securities said the failure was “a very serious incident in the middle of a ramp-up phase.”

“This will have a negative impact on earnings estimates for 2011, but it’s too early to say how big,” Bergkaasa said.

However, Hans Erik Jacobsen, analyst at First Securities, said he thought the Hydro stock had overreacted to the news.

“Although it’s too early to say anything about the economic consequences, it will not be significant in a Hydro context,” Jacobsen said.

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Redundancies offered at Portland

August 12th, 2010

This story comes from the Australian Broadcasting Corporation (ABC).     there’s some parts of this that don’t make a lot of sense.

On a historical basis, the relationship between the Aussie and US currencies is not sufficient reason to justify layoffs.   At the moment the Aussie is trading at about US$0.91.   But over the years the range has been as low as $0.48 to as high as $0.95.     The smelter itself is enjoying preferential electricity pricing, and with 30 years of operations under its belt, there can’t be a lot of capital charges left to pay.

The article also leaves blank the question of whether further layoffs will occur.   According to the story, the company had discussions with the unions about “all facets of the business.”   They got at least 11 people put up their hands, and apparently have been given payouts.   But after calling for a widespread review of costs, it is hard to imagine they will stop at 11.  

Many of my former workmates left Alcoa’s Point Henry smelter to transfer to the then-new Portland project.   I remember it was billed as a great employment and life-style opportunity, although one enterprising foreman that I worked with saw more lucrative financial returns.   I recall he told everyone he would move to Portland, not to join the construction or operations team, but to buy two local businesses – the taxi service and the local cathouse.   He reckoned that with so many people flooding to the town, those two businesses were set for a major boost.

Here is the story.

Voluntary redundancies have been offered to 11 workers at the Alcoa aluminium smelter in Portland.

The American-owned company is undertaking a restructure to improve its global productivity.

Alcoa spokeswoman Anna Impey says the low US dollar has affected profits.

She says the company received more than 11 expressions of interest for voluntary redundancies.

“The announcement of the offer to give voluntary redundancies follows an extensive consultation process with our employees and the unions, which we started back in April when we announced that a further restructure program involving all facets of the business was taking place to improve profitability and international competitiveness,” she said.

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Weiqiao looking at IPO

August 11th, 2010

The following article comes from Reuters.

Weiqiao Aluminum, China’s largest private alumina producer by capacity, has submitted a listing application to Hong Kong’s stock exchange aiming to raise about $1 billion, the Ming Pao Daily News reported on Wednesday,

Shandong-based Weiqiao Aluminum, competing with Aluminum Corp of China Ltd (Chalco), was expected to launch its initial public offering in October, the newspaper cited market sources as saying.

Investment banks JP Morgan and ICBC International, were handling the deal, the newspaper reported, without giving further details.

The parent of Weiqiao Aluminum also controlled Hong Kong-listed cotton yarn and fabric maker Weiqiao Textile Co Ltd, the newspaper said.

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China’s output growth slows after government crackdowns

August 10th, 2010

The following article comes form Bloomberg.   I suspect we will see further strengthening of the Yuan as a result of the inflation figure, and although the third quarter is likely to show continued softness, by Q4, the corrections will make way for new pump priming.

China’s industrial output grew the least in 11 months in July as the government cracked down on real-estate speculation, curbed credit and closed factories to meet energy-efficiency targets.

Production rose 13.4 per cent from a year earlier, the statistics bureau said in Beijing today. Inflation quickened to 3.3 per cent, the fastest in 21 months, boosted by a low year-earlier base for comparison and rising food costs.

Weaker demand from a Chinese slowdown forecast to deepen each quarter this year may ripple across Asia, limiting growth in the nations with the closest economic ties. Japanese factory output may be hurt after exports to China were a ”major force” in the nation’s recovery from the financial crisis, Japan’s government said yesterday. China is also Australia’s largest export market.

”China’s government should be more careful with property and energy curbs and switch to softer and more flexible policy measures to ensure that economic growth doesn’t slow too sharply,” Liu Li-Gang, a Hong Kong-based economist at ANZ Bank said before today’s release. ”Weaker demand for China’s exports later this year and a cooling domestic economy may directly affect neighbors such as Japan, South Korea and Taiwan.”

Industrial-output growth matched the median estimate of 29 economists surveyed by Bloomberg News. In June, the increase was 13.7 per cent. The July gain was the smallest since August last year after excluding distortions caused by holidays at the start of each year.

July’s inflation matched economists’ 3.3 per cent median forecast. In June, prices rose 2.9 per cent. The government aims to limit full-year inflation to 3 per cent.

The Chinese government is betting on the strength of the recovery in the world’s third-biggest economy, which has expanded by more than 10 per cent for three straight quarters, in chasing energy-efficiency targets even as growth slows.

Officials have told companies including Aluminum Corp. of China Ltd., the nation’s No.1 producer of the metal, and steelmaker Hebei Iron & Steel Group, to shut outdated plants by the end of September. Morgan Stanley estimated August 9 that the campaign could shave 1.5 percentage points from full-year industrial-output growth.

Urban fixed-asset investment rose 24.9 per cent in the first seven months of 2010 from a year earlier, the statistics bureau said today. That compared with a 25.5 per cent gain for January- through-June.

Retail sales grew an annual 17.9 per cent in July, compared with 18.3 per cent in the previous month, the bureau said. Producer price inflation slowed to 4.8 per cent from 6.4 per cent in June.

The government is tightening oversight of bank lending after a record expansion of credit in 2009 and limiting multiple-home purchases to prevent real-estate bubbles. In the latest move, the banking regulator has ordered lenders to transfer off-balance-sheet loans onto their books and make provisions for those that may default, three people with knowledge of the situation said yesterday.

The Shanghai Composite Index slumped by the most in six weeks yesterday after reports showed the property market cooling and imports rising at the slowest pace in nine months.

China International Capital Corp. sees inflation gradually slowing in the second half as the economy cools and commodity costs have only limited increases. London-based Capital Economics Ltd. said this week that the impact from floods that pushed up food costs should be ”short-lived” and inflation may be in ”sharp decline” by year-end.

Policy makers may allow larger gains by the yuan against the dollar in the next two months to counter price pressures, given that the government is “reluctant to raise interest rates,” UBS AG economist Wang Tao said yesterday.

The Japanese government yesterday lowered its assessment of China for the first time in 18 months. Growth in the world’s fastest-growing major economy slowed to 10.3 per cent in the second quarter from 11.9 per cent in the first three months of the year. China’s cooling measures come as export orders soften.

The median forecast in a Bloomberg News survey of economists is for economic growth of about 9 per cent in the fourth quarter.

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China orders 2000 firms to close

August 8th, 2010

The following article comes from today’s China Daily.   The aluminium industry is not mentioned, but we think it is only a matter of time.   Really, the government has only until the end of September to make any decent inroads into 2010 results.

China has ordered more than 2,000 companies in 18 industries including cement, coking, iron, paper and dyeing to shut outdated manufacturing capacity by the end of September, according to media reports Monday.

The factories targeted for closure were either highly polluting, highly energy-wasting, or did not meet safety requirements, the Ministry of Industry and Information Technology announced in an order on Sunday, the Shanghai Securities News and other newspapers reported on Monday.

Firms that fail to comply with the orders could face penalties including having their sewage treatment licenses revoked, lending curbs, or even having their business licenses withdrawn, it said.

The companies affected include the parent company of Guangxi-based Liuzhou Iron and Steel and a cement-making unit of Jilin Yatai (Group) Co, which is based in the northeast of the country.

China, faced with serious environmental problems and pressure on resources, has been seeking to upgrade its manufacturing sector, implementing stricter energy efficiency and pollution targets and forcing the closure of wasteful capacity.

In a parallel initiative, the industry ministry is working to consolidate the steel sector by closing small mills and raising production standards, focusing on shutting mills that produce less than 1 million tons of crude steel or 300,000 tons of higher-end steel a year.

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八月八好, ba yue ba hao, or 8th of the 8th

August 8th, 2010

Today marks two years since the Beijing Olympics opening ceremony took place. On a rather warm evening two years ago, 100,000 people inside the stadium joined millions around the world to watch what was arguably one of the greatest spectacles ever seen on the planet.

Tonight a few of us gathered in a bar here in Beijing and watched the show again. The timing, the logistics, the lighting, the colour, everything was superb.

But it is amazing to think back over the last two years and consider how much has changed since then. Of course, Lehman Brothers had not yet collapsed.

What I wonder is, if we had not had a GFC, how would China look today? There were already some warning signs in some of the economics data. The boom caused by the Olympics had passed. People were wondering how things would work out once the Summer Olympics and Paralympics had been completed.

Here in Beijing, expats left in large numbers in the weeks following the Olympics, and in even larger numbers once the full effects of the financial crisis took hold.

Nowadays the same thing is happening. Where before the Olympics, foreigners could command any salary as Chinese companies desperately sought the resources to expand, now those same employers prefer Chinese staff. Many Beijing-based foreigners are finding themselves unemployable.

The opening ceremony and the subsequent days were not for the global market. They were most definitely designed for the Chinese population. It was a huge tonic, which today is still paying off.

It is probably the most important thing that foreigners today do not understand about the Chinese. The Chinese are about the Chinese, they do not care about foreigners, except to the extent that we have something they want. That could be food, energy, raw materials, or the outlets for Chinese products.

In a perverse sense, it’s probably a good thing that the global economic crisis put the brakes on the Chinese economy. But it could now turn out to be a major difficulty for the rest of the world, as the Chinese continue their trajectory.

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Valco smelter to restart

August 8th, 2010

This article comes from the Ghana Gazette.  According to our database, the smelter is about 200,000t capacity.

The Volta Aluminium Company (VALCO), an aluminium smelting plant which was shut down two years ago due to power supply constraints, is to be reactivated.

Consequently, stakeholders in the company have met to consider critical issues and plot the technical details to bring the company back on stream.

Key among the issues are whether or not the current level of electricity supply in the country can support VALCO, as well as the tariff regime to ensure that the company can make profit should it start operations.

A Deputy Minister of Energy, Alhaji Inusah Fuseini, disclosed this to the Daily Graphic in Accra after a business delegation from Turkey had called on him.

The delegation was in the country as a follow-up visit to that of the Parliamentary Select Committee on Trade and Industry and some members of the Ghana Chamber of Commerce to that country.

The Turkish delegation was in the country to explore investment opportunities in downstream businesses, particularly in the oil and gas sector.

The VALCO, one of the largest smelters in Africa with a workforce of over 500, was established by KAISER Aluminium of the United States of America and the Ghana Government in the early 1960s to produce aluminium products for further processing.

The government acquired 90 per cent shares under a joint venture arrangement with the Russian giant, RUSAL, making Ghana a majority shareholder.

However, it was temporarily shut down due to inadequate power supply.

Briefing the delegation on the country’s emerging oil and gas industry and prospects, Alhaji Fuseini said with the discovery of gas and crude oil in commercial quantities, it should be possible for VALCO to resume operations and make profit.

He said with the discovery of crude oil, tariffs on utilities would be reduced to enable businesses such as VALCO to thrive.

He also hinted that the government was committed to developing renewable energy for the country’s use.

Alhaji Fuseini said as part of the plan, the country would generate electricity from soil and wind, adding that the government’s target was to achieve 10 per cent of renewable energy in the country by 2020.

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