Monthly Archives: July 2012
India’s biggest oil company, IOC, is pushing ahead with their plans to introduce an auction system for the sale of their petroleum coke.
The company recently released some bidders’ rules, which include a 5% initial fee, as well as rules as to the quantity and refinery source that bidders can choose from. Floor prices (reserve prices) will be in place for all coke parcels. For those interested, we have a copy of the rules. Contact us for a copy.
The auction will be run by a third-party company called MSTC.
Auctioning pet coke is a brave move. India isn’t exactly a highly liquid market, at least in terms of the number of bidders - or potential bidders. Buyers have long complained about the slowness of the oil companies to respond to market conditions. Witness the amount of calcined coke exported from China to India - sometimes by Indian calcining companies.
An auction system removes the chance of any relationship-building, and it makes me wonder if IOC were worried about getting the best price for their coke. But the law of unintended consequences is likely to apply here. It would be foolish to think that buyers would simply lay down and accept this new system without a fight. We understand at least one calcining company has lodged an appeal with the government.
For more information on what’s going on in the Indian pet coke market, or the primary aluminium industry there, make sure you are subscribed to our “India Report”, which comes out each month.
Those of you who receive our regular weekly update on the carbon market will probably have noticed just what a sorry state China’s raw materials market is in right now.
Two examples in this week’s report illustrate:
* Calcined coke prices are now below the high end of the green coke price range. Not by a lot, and only at the top end of the range, but given a yield factor of 80% in the transition from green to calcined, the should be a premium for calcined coke, not a discount.
* Aluminium fluoride prices dropped RMB300 this week. There has been a series of measures to reduce output across the industry, in the hope that the price would hold or even rise. But those measures were always going to be difficult to retain for very long. There was a drastic reduction in output a couple of months ago, and again at the start of July, but the resolve amongst producers seems to have collapsed. Outcome = a drop in the market price.
It is at first glance a little hard to reconcile falling raw materials prices with rising metal production, but we think the market had already factored the metal equation into the pricing, and in fact were expecting more demand than what we are seeing.
This would help explain why coke prices were supposed to go up by the end of July (see our post of about 3 weeks ago), but have held largely steady, and why calcined coke prices seem to be so low, relative to GPC. The market was expecting things to be a lot more buoyant by now, with one third of the third quarter now gone, and so far no sign of the supposed H2 improvement.
PS - if you haven’t been receiving our weekly report, contact us at enquiries@az-china.com.
Rio Tinto has announced the appointment of Ms Marie Lapointe as Executive director of operations for steel and powders, inside RT’s Metal Powders group.
I had the pleasure of working with Marie inside the Alcan organization many years ago. This is one complete individual - intelligent, aware, not afraid to speak her mind, but equally caring and insightful.
Marie served a long apprenticeship in various operational, engineering and arresting roles within Alcan, sometimes at personal expense. Though I have no information either way, it strikes me that a gig in an organization like metal powders can only be a stepping stone to something more suited to her experience.
I last bumped into Marie at the Antaike conference last year, but our previous meeting was one in which her advice and counseling was timely and supportive. I wish Marie great success in this and future roles.
China’s National Bureau of Statistics today published the June production number, which they have booked as 1.685 million tonnes.
Setting aside our many reminders that China’s official numbers are often wrong, this is a record for China’s aluminium industry. That makes for 56,167 tonnes per day, and an annualised rate of 20.5mt.
Given that there is still more than 1 million tonnes of new metal capacity (on an annualised basis), our prediction of 21.5 million tonnes for 2012 is looking pretty good.
The jump in metal production comes about because of two reasons - new capacity entering the market for the first time, and restarts. Yes, the power price subsidies that started raining down in May have borne fruit, with as much as 500kt per year rejoining the fray. And that’s despite many of them claiming that they had no plans to restart.
All this extra metal is having its effect on the Shanghai price, with the spot price in the doldrums, and the 3-month price in slight backwardation.
These record levels of production presents a difficulty for those who have been predicting that China would be short of metal this year.
UC Rusal has become a member of the China Nonferrous Industry Association (CNIA), according to a press release today.
It had previously been reported that Rusal’s president Oleg Deripasky had been in Beijing last week for a meeting with the CNIA. But this move was not mentioned in those stories. The press release gives virtually no details of how Rusal met membership criteria, since Rusal owns no smelting assets inside China (plenty across the border of course.)
It’s an unusual move, and I went so far as to describe it as “hopeful” to the Reuters Metal Bulletin reporter who rang me for comment.
CNIA is a government entity. Industry associations in China do not operate in the way we are used to in other countries. Although the CNIA supports industry initiatives, its primary role is the roll-out and execution of government policy. It may seem a little bit of an overkill to set up an industry association for an industry with fewer than 70 entities (which together own about 130 smelters.) But think in terms of steel, where there are thousands of proprietors, and you begin to understand why the government makes use of industry associations. It is also a throwback to the 1990s, when the aluminium industry was entirely government-owned.
To understand the work of the CNIA, recall who it was that led the closure of all China’s Soderberg lines in 2004 and 2005.
Since Rusal has no assets in China (they own 2 cathode plants and a JV with a metals trader), it is hard to understand how they qualified.
And if Rusal expects a “leg up” in promoting sales of metal from their plants into China via the CNIA, it seems a long stretch, from what I can see. In the first place, we have local and provincial governments propping up the industry, keeping smelters open and even funding the re-start of additional capacity, all of which keeps China over-supplied. Second, the last major Sino-Russian deal was the crude oil pipeline, where China has short-changed Russia to the point that the Russian President came to Beijing to complain. Third, it has been a long time since the Chinese took advice from any foreigners, much less the Russians.
To the best of my knowledge, no other foreign companies are members of the CNIA. Alcan may have been, for the short while that they owned their Ningxia plant. Alcoa had a small interest in the Chalco Ping Guo plant some years ago, and now have their strategic alliance with CPIC, but I never hear Alcoa talking about being a member.
But to turn this thing full circle, CNIA is a member of the IAI (IAI’s China production figures come from the CNIA), so Rusal may now be an IAI member twice!
Editor’s note - It was Metal Bulletin who called me, not Reuters.
Yesterday I received an email from Jim, who is one of the best commodities analysts around (I won’t name him fully, in case it goes to his head). He wanted to confirm what the average pot life is in China, especially for plants that have been around longer than 7 - 10 years.
His question got me thinking.
Many years ago, when I joined Tomago Aluminium as their Raw Materials Manager, just as we were completing my contract negotiations, the plant manager said to me, “Oh by the way, you will also be responsible for SPL.” At that time, I didn’t know how to even spell SPL… A couple of years later, I found out in no uncertain terms, as we shipped several thousand tons of Spent Pot Linings to Italy for processing, along the way spending something like $800 per ton. SPL is a dangerous and hazardous item, with hydrogen, cyanide, arsenic and other nasties.
Now let’s look at the situation in China. Jim reckons the average pot life is about 5 years in China. If we take a 5-year average of total metal production, and use 2 tons per day output, we can roughly estimate the amount of SPL that China produces each year. Let’s assume for this calculation that the average metal production per year has been 15 million tons. That means 41,000t per day, so approximately 20,000 pots in operation at any one time over the last 5 years. If the average life is 5 years, then we can expect that 4,000 pots have been delined and relined per year in that time. Assuming 20t of materials per pot to come out (cathode blocks, refractory materials, sidewalls, etc) then that means that China is generating roughly (very roughly) about 80,000t of SPL per year.
Even if I am 50% out in my calculations, that’s still 40,000t of nasty material that’s probably going into landfill or road base.
SPL is a problem by-product for the world’s aluminium industry. Western companies such as Alcoa have been working on technology solutions for removing the dangerous elements and converting the material into some for of re-usable product, but I shudder to think how the Chinese industry must be dealing with it here. I hope my fears are unfounded.
China’s aluminium fluoride industry is not out of trouble yet.
Readers may remember we posted here and here about the recent woes in the industry. In May, most producers closed their doors for the month, and production dropped to only 12,000 tonnes. Exports that month also dropped, to only 4,000t.
But the industry re-opened its doors in June, and production rose to 43,000t. (Export figures will be available in our monthly report, due out next week.)
Trouble is, they took all that pain, but got little gain in return. At the end of April, just before the industry took the shutdown, the domestic price was hovering at about RM9,000 (US$1428). At the end of May, it was still at RMB9,000. Now, at the end of June after a month of the plants running again, the price has dropped to RMB8700 (US$1380).
We think the industry association will almost certainly call for another “holiday”. Their only hope right now is that we provinces such as Henan giving power price subsidies to smelters to keep them open, perhaps demand for ALF3 will be strong enough to support the industry. But it’s a slim hope.
Keep this in mind for the next time you are planning a trip to China…
There’s a company here that we came across recently, called Bespoke Beijing. They specialise in providing customised travel services, tours, airport pick-up services and similar. Their prices are better than if you use your hotel’s service (and many hotels actually outsource these service offerings to Bespoke Beijing), and you get some pretty nice service from them.
To give you an idea, a pickup from the airport to any hotel in Beijing will cost RMB400, while the use of a car and driver for a day will set you back RMB800. A trip to the Great Wall is RMB980.
More than that, they also offer expert tour guides. You want a tour guide who can explain the city architecture? No problem, they have a retired professor of architecture on their books. You want to know where the best restaurants, night clubs and other attractions are? They can provide a guide.
They also offer a special service that is good for those of you who may be a little nervous about getting around in China. They can issue you with a mobile phone that is preloaded with numbers you can call for anything - translation service, your hotel, first aid, police and so on.
You can contact Bespoke Beijing at www.bespokebeijing.com, or contact us at AZ China and we will put you on to them.
Another 600KA smelter will be appearing on the world stage in the next couple of years. Chalco has started foundation work for their new smelter, in Qinghai province.
The new smelter will be integrated with a coal production and power station facility. Apparently it will cost in the order of RMB 10 billion, or about US$1.5 billion. No word yet on the capacity or the expected start-up date, but we estimate it will be in 2014.
We understand that this smelter will also be something of a test or pilot plant, perhaps similar to RTA’s 600KA plant in Canada.
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