Monthly Archives: September 2010
The Chinese Government’s drive to reduce energy consumption in key industries has caused manufacturers of ferrosilicon to reduce output.
But the knock-on effect is that aluminium companies and automobile companies around the world are set to run into problems with both supply and price of magnesium.
Why? Because the production process for Mg uses ferrosilicon as a key ingredient. Without adequate supplies, Mg producers are unable to produce enough of the metal to meet demand.
Consequently, Mg prices have risen 7% in the past 2 weeks, and are now a shade under US$3000 per tonne. That’s not as high as the metal got during the heady days pre-GFC, but it’s certainly a lot higher than the good old days (allow me a little self-indulgence) when I was buying the metal at $1600 per tonne. And I am sure some readers have longer memories of even lower prices.
There has been a lot of press lately about China’s aluminium industry cutting back production, in the face of a squeeze from the Ccentral government. Some commentators have taken everything that has come out of China’s newspapers (or the agencies that are represented here in China) as being gospel truth. In light of Beijing’s desire to reduce the amount of energy consumed per unit of GDP, some people have been taking any little sign of a reduction as a portent of a much lower production outcome for 2010. Add to that picture rising electricity costs, and many western commentators have predicted that smelters would reduce output to avoid unprofitable production or Government penalties.
These commentators need to check the details, and they need to get some experience running a smelter. Operating an aluminium smelter is like driving a Formula 1 racing car. You have to give it full throttle to get the best out of it. It is quite simply a waste to have a pot that is capable of running at say 300kA, but choking it back to 250 or something lower. The potrooms run like clockwork - every day you must change x number of anodes, tap x number of pots, and so on. Changing the operating cycle of a potroom is no easy feat.
As for the details of what is happening in China - really, not just because some agency puts out a story - again, the commentators and observers need to be here and get amongst it. AZ China has been conducting an audit all every smelter here in China, checking whether they have reduced output, and if so if it was due to Government policy, higher electricity price or for some other reason.
The results tell a very different picture to what some would have you believe. Some plants told us that indeed they were shutting down, but this had always been the plan, since a new potline with newer technology was now on stream. Others said it was business as usual. A couple are waiting until the new year, when they plan to re-start.
I won’t go into the full results here, but it is a very interesting picture. If you would like more information, please contact us at AZ China, at blackchina@az-china.com.
… and it might come true?
The world’s largest aluminium producer, UC Rusal, predicted last week that China would be a net importer of aluminium by 2011.
In comments which were widely reported, the company said they were gearing up their Siberian operations in expectation of rising unmet demand from their neighbour. The Rusal exec cited energy reductions forced onChinese smelters by Government policy and rising electricity prices (which are effectively the same thing).
Well, they would say that, wouldn’t they.
Of course Rusal wants China to become a net importer. They above anybody else would stand to gain, with their smelters in Siberia.
Trouble is, the facts don’t equate to the hype. China is still in the process of constructing around 8 million tonnes of new capacity. Consumption numbers in China are terribly rubbery, but assuming around 16 million tonnes this year, and with about 20 million tonnes of existing capacity, China won’t need to import metal any time soon.
Ah but what about all those capacity cutbacks, I hear you ask. Be careful what you read. Just as Rusal is spruiking a position, so too there have been all sorts of announcements and statements which claim some sort of moral high ground, but are not supported by the facts.
We at AZ China have been auditing every one of the 114 smelters currently in operations here. We know what the true position is. I am not going to give the full outcome here, but to give you an idea, 2 of the so-called smelters that were on the list of enforced closures were not even smelters. Several smelters have actually increased capacity. Others are waiting until the heat dies down, so to speak, with plans to resume full production in the new year.
To find out more about what is really going on in China’s aluminium industry, contact us here at AZ China. blackchina@az-china.com.
Chinese aluminium company Yankuang, whose smelter in Shandong I visited last year, is to join with Australia’s Bauxite Resources Ltd in the construction of a new alumina refinery.
The partners hope to have the refinery project start within the next 5 years. The plan is for the refinery to have an operating capacity of 1.1 million tonnes.
Meanwhile, Bosai Minerals Group, which also runs smelters here in China, has announced a plan to construct an alumina refinery in Ghana. With construction to start in 2011 and an operational target of 2014, this refinery will have a phase one capacity of 2 million tonnes.
We at AZ China suffered a small technical glitch for about a day and a half. As a result, our web site, emails, and this blog, all died. All fixed now, and we have resumed normal operations.
The annual Metal Bulletin aluminium conference in Bahrain is on this week. Here are a few snippets from the speeches:
* UC Rusal is calling for a new index-based system for alumina pricing. How such an index would work without bias but with full information on the true value of spot sales was not discussed. Alcoa supported the motion, and I understand that Rio Tinto is also infavour of it. At least one smelter got up and said no thanks. Qatalum rejected the notion, saying it was too important to hedge costs.
* Alcoa predicted that global demand for aluminium over the next decade would average 6%pa. At this rate, more smelting capacity will be needed - somewhere.
Meanwhile, a recent paper issued by a GCC consultancy predicted that global demand for th emetal would reach 70 million tonnes by 2020.
Production of aluminium in August dropped to 1.388 million tonnes, or 44,800 tonnes per day. This is a drop of 2.1% over the result for July, but an increase of 20% over August 2009.
Compared to the peak month of June, when China churned out 47,800 tonnes per day, it is a drop of 5.6%.
For 2010, it suggests the year will close out at around 16.5 million tonnes, which is exactly where we have been saying it will finish. At that level it will be a 25% increase on 2009 (or 28% if you use the CNIA figures, which are next to useless.)
The drop in production since June of 3,000 tonnes per day equates to an annual reduction of just over 1 million tonnes, which will no doubt get some commentators agitated.
But making that sort of comparison misses two important points. First, consider that June was the month when a couple of new smelters came fully on stream, but their older brothers had not yet retired. June was a transition month.
Since then we have seen the announcements of smelter cutbacks, which all have to be finished by the end of September, but we will also see some new capacity come into the market.
And this leads to the second point. China’s aluminium industry is quietly going through a transformation. Old, inefficient smelters are gradually being replaced by new younger brothers, with higher amperages, better current efficiency and much lower power consumption per tonne of metal.
China will soon have a fully operational 500kA plant, plants which achieve 95% CE and plants which get down below 12,000KWH per tonne. The transition is also geographic, with smelting capacity moving west to regions and provinces with much lower electricity prices.
Don’t let the blazing headlines lead you to miss the real story underneath.
A news reporter friend of mine is aghast at the tip he has received. So aghast that he is looking to run down the facts on this story and get it onto the world’s airwaves.
The story that he is following is that some unscrupulous street-side food vendors are selling cat meat as lamb. They achieve the flavour match, so the story goes, by soaking the cat meat in sheep urine.
I warned you not to read this.
I am not sure how my friend is going to prove this story, much less how he will report it. How does one go about it? Approach your local food vendor on the next street corner and ask him? Trace the deliveries back to their source and find trays of meat soaking in liquid? Send samples to a laboratory? Certainly not via a taste test.
If he does get enough facts together to put a story together (he is a TV reporter), then this story is set to go viral. He works for a major news outlet, and has had stories go around the world before, so it won’t be the first time for him. Though I doubt he will want to be remembered as the guy who broke the “cat meat/lamb piss” story.
I hear you asking, and I have to say, I see very few stray cats here in Beijing…..
China sometimes cashes in on its 5000 year history a little more than necessary. I know there are some traditional people out there in the Middle Kingdom, but the lunacy that is this week is one example of how this country is not yet in the 21st century.
There’s a full moon coming up on September 23. In the lunar cycle here in China, that represents mid-Autumn. An excuse to have a two-day holiday, and to give gifts of “moon cakes” - hideous delicacies that everyone gives away, but nobody eats. Try googling “moon cakes” to get more information on these little monsters.
But more to the point, the authorities declared that since Wednesday and Thursday are public holidays, therefore Friday should also be a day off, to connect with the weekend. But since Friday doesn’t qualify as a holiday, therefore all Chinese had to work yesterday. Government offices, SOE’s and most Chinese businesses were open for business Sunday.
So we get a one-day weekend, a to-day working week, then a 5-day break. Great for the workers, true. But this arrangement pays absolutely no heed to the fact that China is part of the modern world. Virtually no foreign businesses were open yesterday, and most of my foreign friends told me they would not be going into the office yesterday.
Apart from the Middle East, virtually nowhere else in the world was open for business on Sunday. Yet Wednesday to Friday when the rest of the world does want to connect with China, we will be closed! I do not understand why the authorities solemnly stick to an archaic calendar which does nothing except to sustain superstition and create disruption. Why not simply move the holidays back one day to Thursday and Friday?
Consider the case of an Australian friend of mine. Her older son goes to primary school (which was open yesterday), but her younger son goes to Eton pre-school (which was closed). Her husband had to work yesterday, but Wednesday he has to travel. Then on Wednesday, the older boy’s school will be closed, but Eton will be open.
To those of you who are clients of AZ China, I will still be checking emails, even if I can’t answer your question until all the factories and offices re-open. By the way, we sent our Chinese staff home at lunch time yesterday.
By the way, we also have October holidays coming up. October 1 to 7 will be public holidays here in China, to mark 61 years since Chairman Mao took over the country. (That’s the other irony - the authorities pay homage to ancient superstitions and beliefs from the 5000 year old lunar calendar, then give us a week off for an event that was meant to clean out the old ways.)
Some news from around the world’s aluminium smelters:
- Rio Tinto Alcan’s smelter in Cameroon may soon have a big brother. Despite ongoing power supply problems there, RTA is looking into the feasibility of building a 1 million tonne smelter in Cameroon, along with a 1,000mw hydroelectric power station.
- Also in Cameroon, a US company called Hydromine is reportedly looking at building a major hydroelectric power station, with a 500,000t smelter. Hydromine is coming at the project from the power station angle, but is allegedly already in talks with a major aluminium producer.
- It seems Dubal is still committed to long-term capacity expansion. At a recent conference in Dubai, one of their key executives confirmed they plan to be at 2.5 million tonnes capacity by 2015. They expect to produce a little over 1m tonnes this year.
- There is talk of a new enormous hydroelectric scheme for the southern part of Papua New Guinea, with power being transferred to large projects in Queensland Australia, possibly including alumina refiners, but with power also going to an aluminium smelter going into Papua New Guinea. As the cops say on TV shows, this one is “10 years to life.” it will be a long time coming.
- The Indians are getting restless. There seems to be a great deal of acimony building inside India’s aluminium industry. Vedanta stands accused of mining bauxite in restricted areas. Politicians are now jumping onto the case, calling Vedanta’s operations “illegal.” It seems that to get to the bauxite, Vedanta’s mining company has had to remove virgin forest, which also happens to be the spiritual and economic home of some local ethnic groups. The Indian Environmental Agency (NEAA) has rescinded its earlier clearance for Vedanta to mine there, and called for operations to stop immediately. Vedanta claims it is doing nothing illegal.
- Alumar alumina refinery in Brazil has been having operational problems recently. But management have come out and said that they hope to be at 9,000t per day by year end. The refinery recently went through a 2 milloin tonne expansion.
- Rusal is looking into returning to their project to build an alumina refinery in the north of Russia, in the Komi region. the plans were shelved in 2008 when the GFC hit, but the local government has invited Rusal back to the table. The project would commence in 2013, and be operational 4 years later. The proposal was for a 700,000t refiinery.
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