Bauxite supply to be diversified in future

China’s appetite for bauxite and alumina is still growing, so it’s interesting to see what has happened since the days of Indonesia’s ban and the unlikely rise of Malaysia.   Guinea has now risen to be the big mover, replacing both countries.    For Weiqiao (also known as Hongqiao), they seem to have the supply problem solved for now, but it’s a broader question than for just one customer.

According to Customs data to April, volumes of bauxite imported to China increased by 9% y/y. Among them, Australia’s contribution kept 20% positive growth but Guinea rose sharply. Market share of Southeast Asia continued to shrink after Malaysia’s export ban. However, with the exception of Xinfa which expanded in 2016, imported volumes of main buyers all presented decreases (Yantai Jintai always supplied bauxite to Nanshan).

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It’s a critical question for Chinese smelters.  How to ensure the normal operation when China is shortn ready supplies of bauxite?  The answer is to keep searching and finding other sources of supply. Lubei Alumina as a major alumina refiner has signed a long-term contract with Australia Metro and resumed the imported business with Indonesia. In addition, the restart of Qixing aluminium will boost the import of Malaysia bauxite. As for Nanshan and Chalco, Australia and Brazil might be the best choice.

Turing to domestic market, it also met multiple problems. Since April to now, mining business of coal, bauxite and fluoride were forced to control because of stringent environmental inspection. Shanxi province as one of the major three bauxite supplying regions has signaled insufficient output with purchasing price up. The local government is still carrying out rigorous inspections and there was no signal indicating mining business to resume activity. Although alumina price rally fast after the curtailment of Chalco, the operating rate didn’t resume at the meanwhile.

Overall, there is supply gap of bauxite either in the domestic market or imported products. As for latter, the market will be more diversified in spite of Guinea becoming the dominant player.

Why strong carbon but soft coke?

China’s petroleum coke market unexpectedly became weak in the last couple of weeks, led by the teapots refineries.  As the chart shows, the monthly price from independent refineries started to weaken during April and May, and tumbled down at the start of June. Meanwhile prices at the big SOE refineries remained stable.The change in teapot refineries’ prices coincided with scheduled maintenance at several refineries.

Teapot refineries constantly expanded in recent years, mainly in Shandong area.  Their market share reached over 30 per cent. Teapot refineries operate slightly differently in the market.   They publish their coke price changes to the broad market immediately, whereas the SOE’s only notify their larger clients of price changes for their coke.  Because of their size in the market place recently, this lends some volatility to the market.

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The chart below describes the monthly change of calcined coke and anode prices. CPC output has decreased in the three months since February, climbing slightly in May. Meanwhile, anode output also fluctuated or declined in recent months.  There is no doubt that the environmental inspections halted some production.  In fact, the stringent controls around Shandong, Hebei and Henan provinces never weakened during the first half of 2017, culminating with more restrictions for the OBOR conference recently.  And this is the essential reason to push down coke price. The relationship between coke and downstream carbon has evolved into oversupply.

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We mentioned in latest weekly report, Weiqiao and Inner Mongolia Jinlian aluminium conceded another increase to the purchasing price of anode in June, and the condition of Inner Mongolia is bad. In order to obtain sufficient goods to ensure the operation, they increased by RMB300-350/t. On supply, factories in Henan and Shandong had to restart slowly but in Hebei, total output kept stable with the previous month. Current anode production cannot keep up with demand right now.

In fact, what we are seeing is a function of the different cycle times for the three products.   We think the market will become clearer as we pass through June, and the strong demand at the anode level will soon move upstream to coke.  But if you really want to understand what’s happening, contact us about subscribing to our weekly and monthly reports.

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Game theory and alumina

Yesterday, Chalco officially announced that they will shut down 970kt alumina capacity to ensure the benefit maximisation, or in other words to minimise “LOSSES”.  As reported before, it should include the alumina refining of Chalco Shanxi, which has annual capacity of 800kt. So how terrible is the market condition now?  In my personal opinion, the environmental protection push should be essential reason.

Of course, the tumble of prices should be the direct reason.  The average price of alumina had dropped by 24% from the top of this year but still with an increase of 16% y/y. Excluding the market factor, the main reason caused by the raw material-bauxite.

Since last year to now, the whole Chinese industry is experiencing the historical stringent environmental protection. For Shanxi province, we had mentioned in our blog that it is one the richest provinces in mining including bauxite and coal, and this is why it accounted for 26% of the alumina market now. But now, ore extraction is controlled by the environmental inspections and drove price up constantly. Meantime, the high inventory formed generally overwhelmed the market pulling the price down.

For alumina, by now there were two alumina refiners shut down parts of production line for ten to twenty days because of the environmental inspections. The cost to shut an alumina refinery is not as high as for a smelter, but it is still significant, so I wonder why they don’t stay shut long enough to allow the price to recover.

Furthermore, the supply-side reforming on aluminium industry has primarily finished in Shandong, Xinjiang and Inner Mongolia province, because vast majority of capacity and planned capacity is centred in these three province. But the final announcement merely sent a soft unclear message, in other words, it is that the limited expansion and current operating capacity is likely to be safe by now.

Hence, with the entire picture of the industry line, raw material up, practical strong demand  and shrinking output, it is a perfect timing to shutdown to cut losses.

Third round of environmental inspections coming

In 24th April, approved by the CPC Central Committee and State Council, the third batch of central environmental protection inspection work officially started. Generally the inspection in each province will last one month from 24th April to 24th May, covering Tianjin, Shanxi, Liaoning, Anhui, Fujian, Hunan and Guizhou and focusing on understanding the provincial party committees and governments to implement the national environmental protection decision-making arrangements.

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As the chart described, since last year July to now, there were three inspection teams distributed into 22 provinces to supervise local government to implement the environmental protection, however this is more powerful and totally different with the “2+26” which merely focuses on improving the air quality surrounding Beijing regions, covering Beijing, Tianjin, and individual cities in Shandong, Shanxi, Henan and Shandong.

If referring to the experience of other provinces in last year, it is likely all industry will be forced to cut or shut down by local government before the inspection. In early April, Hunan Nonferrous Chemical Company has excuse to perform maintenance to shut down but truly due to the inspection.

As for these 7 provinces, Guizhou and Shanxi are much more important, being rich in coal and bauxite, two kinds of main raw material to process aluminum. However, considering the current guideline to active energy market, I hold an optimistic attitude on the inspection on coal. As for other products, we can find in the next chart, with the exception of alumina, the proportion of anode and aluminum capacity these 7 provinces have is very limited. Even if in final they have to shut down or close, the impact for the whole market is acceptable.

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At present, we have not found any alumina refinery to cut because of environmental protection problems. For current market, we still keep eyes on Shandong environmental protection and aluminium cuts.

In addition, China has 32 provinces excluding Hong kong and Macau. If the environmental inspection will reach hand to each one, apparently, Tibet, Xinjiang, Zhejiang, Shandong, Jilin, Sichuan, Qinghai, Hebei and Hainan should be in the name list. It is serious that the central environmental inspection will cross over “Heating Season Cut ” in major carbon and aluminium product regions.

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Tomb Sweeping holiday and a major Beijing event

The AZ China office will be open for business as usual tomorrow –Sunday, but we will be closed Monday and Tuesday. That’s because Wednesday April 4 is Qingming, or “Tomb Sweeping” Day. We will not publish our Weekly Market Reviews next week Monday.

Tomb Sweeping day is a chance for Chinese people to pay their respects to their ancestors.  It is a very important holiday in a country that otherwise does not allow much religious freedom.

Advance notice, April 14th-15th, the Belt and Road forum for international cooperation will be held in Beijing (forum page: https://eng.yidaiyilu.gov.cn/). It is one of most important events in Beijing this year. China’s leaders will be keen to ensure the conference is highly successful. We also believe the government will order a new round of closures to any factory that could jeopardize Beijing’s blue skies for the days of the conference.   It’s now a running joke, where blue skies in Beijing are only because factories are ordered to close.  We have had Olympic Blue, APEC Blue, and now OBOR Blue.

If you are planning a visit to China, especially to the areas around Beijing, we strongly suggest you avoid the period between now and April 15.

If you need to reach us during the early part of next week, please leave message here. We will attempt to answer your massage ASAP.  Paul will be on a business trip to Norway next week, but will answer emails when possible.

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Aluminium-Mobike

In the eighties of last century, China was defined as a bicycle country. But by now, if you have a chance come to China first-tier or some second tier cities, a new discovery is a large number of bicycles began to re-enter the roads.  They are colourful and different styles while with a same goal to facilitate travel.

Mobike as the leader of the internet plus bike here, we do not want to celebrate their performance, but I think you should be aware of some of the company.

  • During the Lianghui two sessions, Premier Li Keqiang met with Hu Weiwei, the founder of the Mobike, affirmed and encouraged such a new mode of operation to drive the traditional economic development through the new situation.
  • Mobike completed the fourth round of $250 million financing at the beginning of this year, with investments from Tencest and other investment institutions. For mobike, their Wuxi factory can produce 14,000 bicycles per day. As a real Chinese-made and Chinese brand, the motorbike is moving towards the world, Singapore is the first station.
  • More and more people are likely to choose bike travel, because it is convenient and environmentally friendly.

As an ordinary resident living in China, of course very happy to promote such a new product appears in our lives. But here, the focus we want to you understood is not Mobike, but how close the bike to aluminium industry.

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Sourcing:Mobike

The picture showing is the second generation of mobike, young personality design and very eye-catching. From the first generation to the third generation, the bike body wholly used aluminum material, and wheel is solid magnesium aluminium alloy. As for aluminium, Shandong Hangxin New Material Company which mainly produces military and aerospace  aluminum alloy materials is one supplier for Mobike Company, as is a branch of Shandong Weiqiao.

Last year, in less than a year, market volume of mobike has reached 80 million.  This year’s total volume is expected to double or even more with the expansion of overseas markets.

Of course, some people will take into account the economic benefits, may be less than the automobile industry, not to mention high-speed rail construction, but  what we focus here is not the economic benefits it brought, but aluminium as a new lightweight recyclable metal material intuitively appear in the bike industry closest to the lives of residents.

Hu Weiwei once said that if the business failed, it is still a public welfare subject. However, as a participant in the aluminum industry, we hope that she can make the bike innovation to be success, not just change the way of life and advocate environmental life, but more importantly, it has promoted the use of aluminium products and develop a more possibilities for this industry!