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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Thomson Reuter’s Base Metals Forum

Hi folks!

As you already know, we’re active participants in Reuter’s Base Metals Forum.  This Thursday won’t be the exception, we’ll be presenting at the forum and covering the following topics:

1. A look at aluminum consumption. Overview of the major sectors of China’s aluminum usage. 

2. Which sectors China is developing, or that are growing faster than others. Are there any sectors where China is a world leader yet?

3.   Topics on Chinese companies going abroad.

It’s a pleasure for us to be counted on as top advisers and analysts, a distinction that is backed up by the years we’ve been in the industry and the experience of our team. At AZ China our promise with our clients is to deliver accurate information that will enable them to cruise the not-so-still waters of the metals industry, which we all know is ever-changing, especially amidst the political/economical reality we’re facing.  We are all about providing you with insight.

If you wish you receive further information about our reports and discover why so many companies trust us with their decision making, fill in the contact form below or contact steph@az-china.com.

Meantime, see you on the Reuters Base Metals Forum later today.   Or contact Melanie Burton at Reuters for your access to the Reuters service – Melanie’s email address is melanie.burton@thomsonreuters.com.

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Ups and downs fierce struggle between the two sides

Since entering March, aluminum prices did not find further highs as the market had expected, and even found a small decline.  Up to now, the Shanghai Futures Exchange aluminum main contract to maintain 13500-14300 yuan / ton range, before the daily fluctuations up to 400-500 yuan/ton of the market temporarily difficult to find; LME aluminum basically maintained 1850-1950 US dollars/ton range. The market seems evenly divided between those with short positions and those who are long.

The bearish thought that there were three reasons:  1. Inventory pressure is increasing, since the beginning of the year, China’s social stock from the beginning of the year 367 thousand tons, and gradually increased to the end of 1.1 million tons, the growth rate as high as 215%. 2. According to the China National Bureau of Statistics data, from January to February, the national electrolytic aluminum production was 5.49 million tons, an increase of 20.66%, aluminum prices rose early to stimulate the expansion of aluminum plant expansion enthusiasm, resulting in aluminum production surge. 3. Downstream processing enterprises, despite the recovery since the beginning of the year, but the growth of consumption is far less than the growth rate of production, in particular, the increasingly strict environmental inspectors so that many small processing plants to stop production, further compression needs.

The bulls think there are four reasons: the recent two weeks has been a downward trend, it seems ushered in the inflection point.  As of now China’s social stock is 1.1 million tons, with the previous high point has been reduced by 24,000 tons, I believe that with the continued recovery in demand, inventories will fall further. 2. Aluminum raw materials prices remain high, resulting in aluminum prices have a strong cost support, although the recent decline in alumina prices, but others like carbon, thermal coal, fluoride and other prices have been running strong. Aluminum smelting costs and the current price of aluminum is basically in the breakeven state, aluminum prices have limited space to fall much further 3. Environmental protection limited to not only affect the downstream, the supply side of the electrolytic aluminum also has an impact, with the heating season 28 city electrolytic aluminum limit 30% cuts, the market for future supply is expected to become stronger. A few days ago Henan Linzhou Linfeng Aluminum Co., Ltd. was affected, although not to the heating season but still limited production by 30%, and there are still 20*400KA electrolytic cell not started. 4. LME aluminum stocks fell significantly from the beginning of the first quarter of 2.2 million tons gradually down to the end of the quarter of about 1.95 million tons, and North America and Europe fell more obvious, while the international aluminum premiums continue to rise, LME aluminum will continue to maintain strong, thus driving China’s aluminum prices.

On the whole, I believe that the current aluminum price lacks clear guidelines, both long and short intense game, and each have a strong basis for support.  Short-term aluminum prices are not expected to fluctuate significantly on the main contract and hover 13400-14100 yuan/ton, LME aluminum prices entangled in the 10 day moving average, but the long term, I believe that supply and demand fundamentals are still the determinant, and the probability of a larger bearish swing.

Thanks to Pinterest for the use of the feature image.

Qixing Group broke

In our weekly report this week, we reported Qixing Aluminum halted both its aluminum and alumina production on March 14th due to financial reasons. Its nameplate capacity is 140Kt, but was running at 70Kt before they curtailed the aluminum production. Just two weeks after they curtailed the aluminum and alumina production, Qixing Group’s supply of capital collapsed.

Qixing Group was founded in 1995 and is located in Shandong Province, Zouping county. The location is very close to Shandong Weiqiao. The deep processing of aluminum is their major business.  The group also has businesses related to power communications towers, new materials, finance, real estate and other areas.

Qixing is a large-scale private enterprise. Its holding company is the publicly listed company Shandong Qixing Tower Technology Co., Ltd.

Qixing Group‘s credit exposure is huge. The total amount is up to 7.6 billion yuan, or about US$1.1 billion. Among the creditors, Guosen Securities Co., Ltd. ‘s credit exposure was up to 730 million yuan. The debt accounts for 10.20% of Qixing’s total credit exposure. Guosen is the only securities company among the creditors.

In addition to a number of local banks, there are some financial institutions outside Shandong Province involved in Qixing’s credit exposure. It includes BSB Beijing Branch, with credit exposure of 500 million yuan, accounting for 6.99% of Qixing’s credit exposure. Beijing Pengrun Investment Co., Ltd. credit has exposures of 200 million yuan, Cinda Asset Management Limited credit has exposures of 200 million yuan, etc. We understand there are at least 36 creditors with exposure.

In addition to the banking industry, there are many social debts.

On March 27, Zouping County Government organized a meeting of Qixing Group creditors. From the creditors meeting  a Qixing Group Banking Debt Committee was established.  The debt committee’s major aim is to prevent the banking institutions from lending, freezing and implementing the relevant assets, and ensuring the successful reorganization of the assets.

Because of the funding chain is broken, Qixing has difficulties to buy raw materials and has shut down its production and it will remain shut for a half year.

Qixing actually used the loans to maintain its daily operations. Most of Qixing Group and Qixing Tower Technology Co., Ltd.’s business is heavy industry. They have big bank loans. The credit situation was complicated by the fact that Qixing has a huge Accounts Receivable backlog, but they were not able to call in the revenue owed to them in time to satisfy bankers.

Since Qixing is unable to repay the huge credit exposure, those parties who did the loan guarantee for Qixing also suffered account seizure, freezing and so on. Some secured enterprises were involved in the proceedings.

Last week, China’s largest cattle farm operator, Huishan Dairy Holdings Company Limited had a similar debt crisis. Its share price collapsed and plunged as much as 91% on March 24th. Huishan dairy’s 70 creditors involved 23 banks and more than 10 financial leasing companies. The financial claims are expected to 12 billion -130 billion yuan (up to the end of September last year).  There are some similarities and some differences between these two huge collapses.

Both Qixing and Huishan had capital supply problems rise up within a week. Both involved so many financial institutions and banks. The debt amount is huge in both cases. The two failures so close together will have an impact on China’s financial system. We believe it will cause banks and relevant financial institutions tighten their debt management processes. But where it appears that perhaps some senior executives squandered Huishan’s capital on private real estate plays, there is no sign or rumor of any malpractice by Qixing directors.

In the meantime, it means more smelters might face challenges to service debt.  The People’s Bank of China has been reining in liquidity recently, and with so many aluminum companies carry high debt exposure, there will be a lot of pressure in the industry these next few weeks.

Qixing Group’s financial crisis reminds us of Xinjiang Jiarun who have had years of financial problems. Their 150Kt capacity aluminum project was postponed many times last year and they finally announced to start the project this March. How will they run the project smoothly if the bank tightens the debt issue?

Picture source: http://www.qixinggroup.com/lc/lzsc.asp

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.

20170322

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!

 

Environmental Protection Inspection in Shandong Province

On March 22nd, Shandong Province started a new Environmental Protection Inspection. They have organized five inspection teams. This inspection will last around one month.

It will cover 10 cities including Weifang, Dongying, Jining, Heze, Taian, Rizhao, Zibo, Binzhou, Liaocheng and Laiwu.

Through the provincial environmental protection inspectors, they will:

  • focus on the understanding and implementation of national and provincial environmental protection decision-making arrangements.
  • Address the outstanding environmental problems.
  • Implement the main responsibility for environmental protection.
  • Promote the construction of ecological civilization and environmental protection, and promote green development.

They will focus on the outstanding environmental problems which have been complained about or have bad social impact.

The inspectors will focus on environmental quality deterioration of the regional watershed and remediation trend.

They will also focus on the government and Party officials work to protect the environment and enact the standards and regulations.

Another focus is to understand the local government’s implementation of environmental protection on “party and government responsibilities”, “a position have double responsibility”, and its strict accountability, etc.

Inspectors will listen to the report, access documents, have individual conversations, visit sites and make inquiries, do spot checks, etc.

The Beijing environmental inspection team will do another round of checks in Shandong starting in April. We suspect Shandong Province is rolling out this inspection in order to be ready for when the people from Beijing arrive.

 

There is a high danger that Shandong government will take measures to ensure a good inspection.  Aluminum smelters such as Hongqiao and Xinfa are in areas named as being inspected.   Will these smelters pass inspection?

In this month’s World Aluminum Monthly, we provide subscribers with a list of those smelters that have environmental protection equipment in Shandong province – and those that don’t.   This information is exclusive to subscribers to the World Aluminum Monthly.  Contact us to learn more about subscribing.   enquiries@az-china.com

We will notify clients and subscribers of any developments.

Picture source: http://bgs.sdein.gov.cn/