China’s aluminium industry - getting the facts right

There has been a flurry of media attention on China’s aluminium industry in the last 48 hours. It has been interesting to read all the reports, most of which have been based on stories by Reuters and Bloomberg. They in turn seem to have relied on the CNIA website.

But did the CNIA get the data right, and did the list of cuts include the capacity that has re-entered the market? What about new capacity due to enter the market, or already built and waiting for prices to improve?

Even Reuters and Bloomberg got some of the facts wrong. Both initially reported that the world’s largest aluminium company, Shandong Hongqiao group was not on the list of smelters that the CNIA published. But it was - it was in there under its Chinese parent’s name, Weiqiao. Both have since fixed this*.

The CNIA listed 41 smelters as having cut capacity this year, or due to cut in the next few weeks. The total capacity listed was 4.91 million tonnes**. But that list includes 800,000t that has not yet been cut, and importantly it includes capacity but which has been restarted. It also counts among the closures some non-existent capacity. For instance, at one smelter it lists that the smelter will close 230,000t of aluminium capacity, when the smelter is only operating at 190,000t. On the other side of the ledger, it misses some capacity closures that have already happened, though the total of these 4 instances is only 100,000t.

To be completely fair, the list includes a small number of smelters as closing, where we don’t have any data about that. Total capacity in this category is 265,000t of aluminium.

In a nutshell, we can see about 4 million tonnes of closures so far this year, including the much publicised cut at Hongqiao. But then we have to deduct capacity that has restarted, bringing the number down further. Then there is still the question of new capacity. The CNIA announcement says there won’t be any new capacity enter the market, but that promise will be severely tested in our view.

AZ China will be issuing a special update to subscribers, providing detailed analysis of the CNIA list, and where it is wrong. If you aren’t a subscriber, change that situation quickly. Contact me to find out how, or go to our website.

*Recently I was accused of gloating over a mistake by a reporter. The blog that accused me of that didn’t bother to check whether I was in touch with the reporter in question. To save my attackers from another assault, I can report that I contacted both Bloomberg and Reuters and told them of the error.

** In China, counting of large numbers with lots of zeroes is done differently than in the west. Where we insert commas after every 3 zeroes, the Chinese insert the comma after every 4. For the number 10 thousand tonnes, the Chinese have “one ten thousand” or 一万. So when the CNIA posts that the total capacity closed is “491”, that means 491 wan, or 4910000. This difference sometimes causes confusion in conferences where simultaneous translators stumble over the number. For instance “一百万” is 100 ten thousands, or as we would say it, 1 million.