Weiqiao exempt from winter cuts

This morning, exclusive news from Caixin hit the China market, saying Weiqiao group got exemption in the winter heating season cut.
It is said Weiqiao’s winter heating season cut capacity overlapped with the previous illegal capacity cuts, so Weiqiao no longer needs to cut capacity this winter.

The news reported that an officer in Binzhou Commission of Economy and Information Technology (EIT) said “Notice on the issuance of Binzhou 2017-2018 industrial enterprises staggering production plan” is approved by the local EIT and the environmental protection department in accordance with national policy. He said when they handle the environmental protection work, they also need to ensure social stability and economic development. To limit production regardless of social stability and financial risk, as in “one size fits all”, is not desirable.

In fact, this news has a mistake Weiqiao actually cut around 240kt capacity in first half of November.

If you are a subscriber of ours, this might not be a news to you at all. AZ China is the only analyst who got it right in the market. Our readers knew about Weiqiao’s cut information before anyone else. We hope our readers were able to put the information to good use, and we look forward to bringing you the inside story first.

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Long time no see…

We’ve been so busy with the AZAD that we’ve forgotten a little about the blog, but worry not we are back!

On Monday…

An article appeared to be reporting that the Ministry of Environmental Protection was unhappy with the cuts announced by Binzhou government 10 days ago, and would order Hongqiao to take further cuts.

But a careful reading of the article showed that the opinion was not that of the MEP – it was really an opinion from some in the marketplace that the MEP should be outraged. We have not seen or heard of any more notices being issued. The Binzhou government would not have issued its announcement without higher approval.

The article looks to us that it was really designed to troll those who had or have long positions. In the parlance, it struck us as being nothing more than clickbait.  I am not going to bother providing a link to the article, as that would only promote the suspected agenda. But it is no surprise that these sorts of stories would circulate – some people with long positions are pretty keen to see the price supported and boosted.

Tuesday…

New era means new level and new leaders

Communist Party Secretary General Xi Jinping has achieved a rare honor – the Constitution of the Communist Party will be adjusted to include “Xi Jinping thought”. The only other person to have his thoughts added to the CPC constitution while he was still alive was Mao Zedong.

Xi Jinping thought was largely explained to us in his headline speech last week. Launching a new era in Chinese history, Xi foresees a China at the center of the world and leading the world with its “superior” model of socialism and economics. To my mind, Xi has been the lucky recipient of perfect timing, as well as a natural gift for being a strong leader. The USA is relinquishing its role as leader of the free world, By stepping into the vacuum, Xi is not simply emulating the American model. He is offering a new vision based on the expectations of his constituents.

By elevating Xi to the level of author of its thought, the Party is putting him in an unassailable position. He was a strong leader before this week, but will likely emerge from the Congress even stronger…

But it doesn’t appear that he will get everything his way. There are strong signals today that Wang Qishan will retire, and will not be in the lineup when it is presented tomorrow. We will likely never know if this was a trade-off, or whether the speculation about Wang staying on was never founded on fact. It will be very interesting to see who gets the job of running the anti-corruption campaign if Wang is gone.

Does this move to solidify around Xi bode well for the world and for the aluminum market? It is too early to tell, though we will get a good signal tomorrow. One thing is for sure though. In his first 5 years, Xi brought the PLA under his command, he unleashed the anti-corruption campaign, he hobbled the media’s ability to think for itself and he has been building a China-only version of the internet. If he was able to take all these revisionist steps in his first 5 years, the next 5 are likely to be even tougher for those of us doing business in China.

Wednesday…

You surely cannot have missed it, but China today unveiled the leadership for the next 5 years. All 7 members of the Politburo Standing Committee are over 60 years of age, leading many including me to speculate that Xi Jinping intends to stay on through to 2027. As expected, Chen Min’Er gets a gig in the top 25, so there does seem to be a backup plan in case xi is not able to continue past 2022. Overall. it strikes me that Xi paid a price for having “Xi Jinping thought” added to the Party’s constitution. Several members of the Politburo are from other factions, meaning that Xi will have some pushback to his plans. But when you have been elevated to a level matching that of Mao Zedong, you have the clout to get your way.

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How rumours affect the market…

A news item that popped up on the weekend said that Hongqiao would no longer be permitted to count their closed illegal pots as part of their winter heating season cuts. In other words, the story alleges that Hongqiao would still have to close another 30% of their capacity, having already closed almost that much for being illegal.

We cannot find any other reference to this story in the Chinese internet or media. We cannot find the source of this news item – it was cut and pasted without a byline. We think it’s probably a trader or someone who has a long position trying to talk the market up.
But it shows the jitteriness of the market right now. The story caused a shock among our followers.

We are just 2 months away from the onset of winter. Doubtless there will be more rumours fly around in the remaining weeks.  We are keeping on top of them.

And while that’s happening, what is happening with demand?

We expect to see a bit of a spurt in metal demand from downstream factories next week. The first week of October is Golden Week in China, a week-long holiday to celebrate the creation of modern China in 1949.  (Expect a huge celebration in 2 years’ time.)

That will be followed by forced closures of factories in and around the Beijing area, to keep the pollution levels down before and during the Communist Party’s 19th Congress.Then before we know it, it will be winter and factories in 5 provinces will be cutting capacity.

The next two weeks will be a peak production time for many factories, especially in the north. Pull through from those factories should keep the price buoyant through the rest of September.

Of course if you’re already subscribed to our daily newsletter you already know, but if you still haven’t, keep up with our blog section and contact steph@az-china.com to get more information on our reports and subscription to the daily newsletter.

Midweek Recap… Aluminum, Hongqiao and all that jazz.

On Monday,

We received reports in our WeChat group that alumina prices jumped. Guizhou prices were at RMB2900/t and we saw one report of RMB3000/t being achieved.  As AZ China’s Monte Zhang put it, this is “crazy.” Our monthly aluminum report went out that morning.  If you are a subscriber but didn’t receive it, please let me know as soon as possible.
This month’s report is especially important, as it gives subscribers a complete analysis of the Replacement Permit situation, including who has bought them, which ones are still for sale, and the origins and ultimate purpose of the program.

Following our news that Shandong government has called for a more relaxed attitude on shutting down factories, some downstream factories are now re-opening.  That should stimulate demand in that area.  As well, there’s still plenty of fund money still looking for a position.

Tuesday,

We heard that Hongqiao has been offering small discounts (less than 50RMB per ton), on metal and alumina. We understand it’s all to do with generating some cash quickly.  Given Hongqiao’s cash cost of producing alumina sits at about RMB2400/t, they are still making money on their alumina trading, and given they have lost or are losing over 2 million tons per year of primary metal, that’s 350,000t per month of alumina that they don’t need.

We also played guess the number! Hydro Norway have been pretty pleased about their new instillation in Karmoy, and the numbers they gave in the press release show it is with good reason.

According to a story I read, they have 60 pots producing 75,000t per year, and are achieving a 15% reduction in electricity consumption. I am no technologist, but I ran those numbers through a calculator. It means that they are producing 3.4 tons of metal per pot per day. That puts their pots at the upper end of the amperage scale.  I am guessing somewhere near 500KA.  That sort of amperage traditionally comes with a high electricity specific consumption, though in the last 10 years most R&D has gone in the low-consumption direction.

Let’s assume they are are using 13,500KwH/t as their baseline.  Taking 15% off that puts them at around 11,500 KwH/t, which is truly remarkable.  Being Norway, they are running at a low electricity cost to begin with, but even if you assume US$10/MwH the numbers add up to a pretty big reduction on electricity costs.

There’s lots of assumptions and guesses in our numbers, so if you have a more accurate calculation, we would love to hear from you…

That brings us to Wednesday,

Stocks of 6063 alloy in the south of China now exceed 150,000t, and with producer and other inventory on top of the market stocks, we think the total inventory is somewhere north of 200,000t.

Paul received an email this morning from Petrocoque, announcing that their CEO Augusto de Carvalho has quit. He finishes at the end of the week. I have reached out to Petrocoque for more information.

We heard a story this morning that Zhongwang has purchased a German extrusion company. No word as to whether this story is true, nor which extrusion company.

When the Panama Papers story broke a while back, we did a corporate search of all China’s aluminium companies, and found that all but two of them were registered in China. The only exceptions were Zhongwang and Weiqiao, who were registered in BVI.

That’s it for our midweek recap, if you want to stay up to date with the latest in the industry sign up for our almost daily newsletter, 400USD if you’re not a subscriber to any of our reports, but if you are then it’s totally free. Contact steph@az-china.com for more information!

In case you missed it…

If you’re not already subscribed to our Almost Daily newsletter, then you probably missed it, so here’s the recap of the breaking news we got on August 18th.

“Shandong’s Zibo city government has issued a document that releases the screws, just a little, on the environmental inspections and the winter heating season cuts.

Essentially, the announcement that we just saw tonight is predicated on the principle that “one size does not fit all”.  The announcement says that if you are close to meeting the standards, and are working hard to meet the requirements, you need not shut down.

Zibo city does not have any aluminium smelters, though it does have some downstream factories.  Zibo, like many cities in Shandong, suffers from excessive pollution.  But the local authorities are now saying, “It’s okay, if you are working to meet the standards, and the impact is small, there’s no need to shut your factory.”

This is hugely important in the greater context, though not so much in Zibo. We understand the the authorities in Beijing have been disappointed with the over-reaction coming from some corners.  Factories were being ordered to close despite their hard work to meet increasingly tough standards, and local authorities were blindly applying a common rule to test everybody, regardless of individual circumstances.

This move by Zibo is likely to lead to other cities taking the same more relaxed attitude. As we understand this document, it applies not just to the winter heating season cuts, but across the board to the entire environmental push.  Local economics are now taking precedence over the national agenda.  They are saying, “environmental protection politics should not affect peoples’ lives.”

The document we have sighted is from Zibo city – there is no document from Beijing – yet.  It doesn’t mean that everything is returning to the bad old days of pollution, but it does mean that the government is seeking to correct the excesses appearing in the execution of their current strategy.”

What good is this information now you must be wondering, well, if you were subscribers to our list you would’ve gotten it right out of the oven, HA! But worry not, we’ll keep updating the blog with news, not as instant as the list, but relevant.

In case my very subtle strategy convinced you, reach out to ann@az-china.com or steph@az-china.com to enquire about our subscription to the list, or subscribe to our reports and get added to the list for free.

What’s been going on in China?

We’ve been working non-stop lately, those of you who are subscribers and therefore get our daily newsletter very well know, but for those of you who aren’t, here’s some info you might not want to miss.

On Sunday, (yes Sunday!)

We found out Shandong’s Nanshan Aluminiuim and Xinjiang Jiarun reached agreement on a management takeover. Nanshan will take operational control of Jiarun. This agreement will allow Nanshan to take over the smelter, which in turn will provide a surer metal flow guarantee for downstream customers.
We understand this “engagement” may lead to a full marriage in the future.

On Monday we covered the Hongqiao issues clarifying statement

“China Hongqiao, the world’s largest alumimum producer, and listed on the Hong Kong stock exchange, has issued a press release to clarify the situation with closure of illegal operating capacity.   I read the English translation 3 times, spoke with my Chinese staff, spoke with a Reuters  reporter about it, and still don’t quite understand what they were trying to say.”

We’ll keep you updated on that!

Fast forward to Tuesday…

The NDRC, together with the MIIT and 16 other government departments has issued some guidelines for defusing the risk of coal over-capacity.  According to the document, they will focus on eliminating backward capacity, shutting down enterprises that don’t meet mandatory standards, eliminating illegal capacity and controlling the roll out of new capacity.

Does all that sound familiar?   To me, I could remove the word “coal”, and replace it with the word “aluminum” and the policy would not change…

Would love to share the entire story with you dear readers, but it wouldn’t be fair to our beloved subscribers.

Last but not least, this month on THE BLACK CHINA REPORT, we report on the rising price of petcoke, as well as some changes in the market for anodes.  Overall, anode quality petcoke is still short, and in some areas is quite tight, With the Winter Heating Season cuts just 3 months away, some smelters in China have started stockpiling anodes.

For those of you interested in enquiring about our reports contact: steph@az-china.com for further information and remember we are offering non-subscribers access to the mailing list for a fee of US$400 for an annual subscription.  If you aren’t a subscriber and you want to continue receiving this newsletter do not hesitate to contact the above mentioned email.