Monthly Archives: November 2011
Chinese green petcoke prices are falling. Sinopec announced another reduction in prices on Tuesday, taking RMB100 off the listed price. Market players tell us that the market is deathly quiet at the moment, while those in the export market say that enquiries and orders are scarce.
This could be that the effects of the long months of tight credit and easing in the Chinese economy are finally catching up with the market. We have already seen the aluminium market here weaken considerably, with SHFE prices slipping below the important RMB16000 point, and inventory rising. So the raw materials market is sure to show the same signs.
Or it could be the canny Chinese way of doing trading. Chinese markets are like markets anywhere, but the timing is super fast, and the reactions much deeper. When prices start falling, the market steps back. No-one wants to buy now, when the price might fall further, so everyone waits to see how far the price will fall. Jobs and careers are at stake, especially in government-controlled companies, which make up most of the market here, so nobody wants to be make a mistake and buy too high.
The trouble with this tactic is that it tends to make the fears of a market crash come true. If everyone steps out of the market, and prices crash, then it looks and feels and smells like the market has crashed, and it in turn can have devastating effects on companies with slim profit margins or who are deep in debt.
Is Chinese industry, and the economy in general, heading for a hard landing? Are these the first signs of that? Probably not, if only because we along with many others expect that the Government will announce new measures within the next few weeks. It’s true that Europe scares the authorities here. China has far more to lose from Europe than it does from the USA. China’s leaders want to steer China to a consumption-led economy, away from investment and export, so this is the best time to do so.
If the Chinese market can react quickly and deeply in one direction, it can respond the same way. If and when the measures come about, the market is likely to jump. For those trying to buy raw materials from China, as always timing will be everything.
AZ China is registered in Hong Kong, and our office in Beijing is registered as a “Representative Office” under Chinese law.
Every year, we have to renew our business licence. For our HK licence, we pay the fee and it’s done within a day or so. Easy.
For our Beijing licence however, it is anything but. First, we had to get a bank statement. Our local bank refused, noticing that the rubber stamp on our document had stretched slightly, so that it no longer looked like the stamp they have had on file since 2007. We therefore had to go to a government bureau and plead for a new “chop” as it is called here.
Every year, we have to provide a statement from our bank to say that our account is in good order. Our main account is in a bank in Guangzhou. But this year, the government has decreed that they will no longer accept bank reference letters from inside China. The risk of fraudulent copies is apparently too great! No problem, I had to go to Hong Kong anyway, so while there I opened an account with a HK bank.
They happily provided me with a reference letter, but the letter said only that we had opened the account at the end of October. Nothing about having a good trading history, which is fair enough, since we had no history with that bank.
Today,we presented the reference letter to the Beijing authorities. They noted that there was no history statement, and rejected the letter. We showed them a letter from our Guangzhou branch, but that wasn’t acceptable either.
We tried arguing with them that it was their rules which caused us to have to switch banks, and that we cannot be expected to backdate history. That argument failed to move the girl behind the counter screen. It seemed we were stymied. Time to pack up and leave China.
But no. Our intrepid girl Lisha is Chinese, and knows how things work in China. She simply went to another counter, in the same room. She presented the same papers, explained the situation. No problem, the business licence has been renewed.
Only in China. Is it any wonder I have grey hair?
AZ China has finally jumped on the social media bandwagon! As we’re exactly 6 months away from our 2012 conference in Qingdao, AZ China is offering a 10% discount off conference registration if you Follow Us on Twitter before November 25th. To get the discount code, simply send us a message on Twitter. Look forward to seeing you in Qingdao! We’ve got some great speakers and discussions lined up. Visit our conference website for the latest details.
In a move which is sure to be replicated many times across the China aluminium industry, Gansu Donging Aluminium company has closed their old potline (192 pots, 80KA, 40,000t per year). The phase-out started last month, and is now complete.
Meantime, they are now starting up the pots in their new plant, which will add 500kt to their other new line, taking them to 800kt. Dongxing enjoy a very good power price, which I won’t repeat here, making them very competitive.
As mentioned, this process of phasing out old capacity and bringing new lower-cost capacity is set to be repeated many times around China. The low metal price will accelerate the process.
Meantime, we are still investigating the stories of pots being prepped for shutdown in the event that the metal price hits RMB15000. So far, nobody is willing to talk about it directly, though we did hear a similar story from another source. The price is still falling, so the best way of testing the rumour may be only weeks away.
Word from our sources is that smelters in Henan and a couple of other areas are now making preparations for the imminent closure of up to 30% of their operating capacity.
Henan province has 5 million tonnes of primary metal capacity, so that means roughly 1.5 million tonnes of annual metal could be closed.
Our insiders tell us that the trigger point will be if the metal price hits RMB15000. If the pots close, it will be for up to 6 months. It is simply not wise to incur the cost of shutting pots, only to restart them straight away.
If this happens, we can expect:
* Metal price not to move too much. Why? Shouldn’t the metal price move up when the supply side shrinks? The market has already factored in a weak Q4 and Q1 2012, as can be seen by the backwardation situation developing in the Shanghai prices. As a result, traders are moving metal into the market to liquidate profits before the price falls. Yet again, it is an indication that Shanghai is not the major market for aluminium. Most aluminium is traded outside Shanghai, simply because traders don’t like to be in the same room as Chalco. But that’s another story. Metal price might respond slightly, but until there are some positive signs from the demand side, Shanghai is likely to stay in the doldrums.
* Alumina prices to fall. Henan province is also home to a lot of alumina refining capacity, so it’s likely there will be an immediate drop by both Chinalco and non-Chinalco plants. Imported alumina may take a bit longer to drop, since the importers won’t want to take a bath on the trade.
* Carbon prices to drop, especially anode grade petcoke, calcined coke and anodes. The market is already awash with coke.
* Cathode prices to rise. Typically, plants which have taken pots out of service will take the opportunity to reline those pots, especially if they are more than 2 - 3 years old. There could be a sudden jump in calls for 25% and 30% graphitic blocks.
* Smelter construction in the northwest to slow. Companies such as Henan Shenhuo, who are amongst the biggest producers in Henan province, will have reduced cash flow, and quite possibly a more phlegmatic view of the market than when they launched their huge project in Xinjiang province. They may elect to throttle back on the cash outflow if they have less cash inflow from their Henan plant.
* Few if any other smelters reducing capacity. Henan province is the highest cost province for producing aluminium. Smelters in Shandong province have already trimmed output in the face of high power prices. Smelters in Guiyang and Guangxi who have been impacted by electricity shortages are looking to get cash flow started. The rest of the market is likely to be glad that high cost metal has gone out of the market, and will wait and see if any further reductions are needed. 1.5 million tonnes is about one month’s supply of metal, so it’s a relatively big cut.
What’s more interesting is, what happens if the Government loosens the credit reins, and the Chinese economy rebounds? Those metal units won’t come back on overnight. Anyone who has actually had to restart a cold pot will tell you it’s not a simple matter of flicking a switch. We could see metal prices rise strongly in Q2 2012. It will be a great discussion at the AZ China conference in May next year.
We will post more information as we hear it.
Strange goings on at Century Aluminum, where the CEO has departed, but has fired a wrongful dismissal suit against the company.
Logan Kruger, Century’s CEO since December 2005 has resigned according to a press release from the company. He has also filed a lawsuit alleging breach of contract and wrongful dismissal. No details of the reasons for the departure, nor the basis of the lawsuit, have been given in the press release.
According to the company’s press release, the claims were without merit. They would vigorously defend themselves against the claims. CFO Michael Bless has been named acting CEO.
Century has operations in California, Kentucky and Iceland. It has been running at a loss this year, and its share price has fallen 29% YTD, according to Reuters.
Hat tip to Tony Botelho, of Goa Petcoke Consultancy, for this item.
According to a newspaper story that Tony sent me, the Indian Criminal Bureau of Investigation (CBI) has sought permission to conduct an investigation into the entire board of National aluminium Company, better known in the Aluminium world as NALCO.
The investigation relates to a contract awarded for the transfer and treatment of slurry from the NALCO alumina refinery. It seems that the company that won the business has absolutely no financial history, the inference being that the company is some sort of front. But the entire board of NALCO reviewed and approved the awarding of the contract.
The CBI is also investigating certain members of the Ministry of Mining in India.
According to the newspaper, wittily called DNA India (Daily News & Analysis), the CBI must seek approval to conduct the investigation due to the senior level of the people at the centre of their focus. However there isn’t a great chance that the investigation will be approved. According to the story, already certain defensive tactics are being deployed, such as deferring the investigation and appointing junior officers to the work. The paper was quite forthright in their description of the machinations going on to prevent the investigation from going ahead.
NALCO is of course a Government-owned company. It is highly unlikely there would be any disruption to alumina or metal production as a result of the investigation or of any findings or actions arising. But the story gives an interesting insight into how things run in India.
You can find the story here.
Aluminerie Alouette, better known as simply Alouette, has announced an expansion plan following successful negotiation of additional power from the Quebec Government.
The expansion will be known as Phase III, and will take the plant from 575,000t up to 930,000t. According to the newspaper reports, the project will last over 15 years, though this seems a little far fetched. The total cost of the project is estimated as US$2 billion.
The announcements said nothing of the technology to be deployed in the expansion, though it is almost certainly going to be AP4x. It could be 500KA, though I suspect the technical people at Rio Tinto Alcan will want to see the Jonquiere plant up and running for a while before they commit to a second smelter.
Alouette is 40% owned by RTA, with the rest being various government institutions from Quebec.
This announcement is probably a little overdue. I understand it had been held up over the wording of certain technical agreements and performance guarantees.
It also comes at a time when RTA is selling off smelters. It has already parcelled up its Australasian assets into a basket called Pacific Aluminium, and has put for sale signs in front of others, such as the smelter in Lynemouth UK and Sebree USA, down in Kentucky. The big difference being the cost of power, which is very low in Canada’s hydroelectric schemes. While the economics of the expansion might be clear-cut, it must be galling for the thousands of employees at RTA’s “black-marked” smelters to see Alouette growing when they are closing or sold.
Interesting on a personal note to see that the Plant Manager at Alouette was named as Andre Martel. Andre was previously Plant Manager at Tomago in Australia (my old stomping ground), though he didn’t arrive until I had left. By all reports, he did a great job during his stay “down under”.
0