Category Archives: Export
India increased purchases of anodes from China throughout the first quarter of this year, with 75kt in total. So far, India has already become the largest importer of China anodes, over Malaysia who was the largest importer in 2013. The volumes India took within first quarter 2014 were 80% of 2012 and 65% of 2013 yet, as this chart shows.
There are three principle aluminium producers in India, including Nalco, Vedanta and Hindalco. Throughout fiscal year 2014-2015, Hindalco has said they will increase output by 50% to 1Mt, mainly from their new facilities located in Madhya Pradesh and Odisha.
Nalco restarted 10 pots this week, meaning they will produce 410t more aluminium every month, and other pots will be restarted gradually. As for Vedanta, short supply of bauxite has limited aluminium production.
India’s domestic market shows aluminium demand rebounded to a certain degree, which encouraged aluminium smelters to raise production. At the same time, new capacity will consume more anodes in the coming months. Even if we only take Hindalco and Nalco’ s added production into account, India needs 275kt of extra anodes.
There doesn’t appear to be any change of strategy; the increased purchases of anodes seems to be a direct consequence of increased metal production.
The all mighty and powerful NDRC has released the latest directives for industrial restructuring or consolidation. Under the carbon category, we have both anode and cathode in the ‘discouraged’ or ‘restricted’ list. Specifics provide that anode capacities under 80Kt and cathode capacities under 20Kt are to be limited and restricted. This means investment proposals for small capacities are likely to be rejected; there may be increasing costs and rules on existing capacities that fall under these categories.
From our research, there are 32 anode plants, totally 1,443Kt, under the restricted category; and 9 cathode plants with totally 94Kt. There is likely to be very limited effects on anode export since most small capacities concentrate in Henan, and the main exporting province of Shandong contain mostly sizable capacities and will not be affected much. In terms of cathode, Shanxi is the main exporting province of cathode in China. In the affected 32Kt capacities, there is only 5Kt that falls under the small capacity category, 17Kt belong to Rusal and the other 10Kt belong to Chalco. The new rules will not impact on cathode export materially.
This is much consolidation in action. We saw the same kind of moves from the NDRC during the capacity cleanup in the 11th 5year plan. The result was many small capacities closed temporally before more sprung up, particularly during the huge fiscal stimulus of 2009. The same challenge exists today. How will the administration keep a tap on over capacity and capacity additions? One of the ways is through regulation which is very much a custom in the Chinese economic machine. This time, regulation may stay for a longer period of time and we may see liquidity provision to tighten as well.
It has been widely reported in the business media, but it is worth having a good look at the announcement from the WTO. they have declared that China’s restrictions on exports of certain raw materials to be illegal under WTO rules. Here is one example of the global media’s reportage.
From our point of view, a couple of the commodities named are interesting.
Why would anybody be demanding that China export more bauxite? China is already a very large importer of the red dirt, and growing faster. Chinese bauxite is poorer quality than much found elsewhere in the world, as evidenced by the fact that Chinese alumina refineries have to run additional processes to purify the product.
Magnesium and silicon made the list of materials that the WTO named. My knowledge is dated now, but I know what it used to be like. Buying magnesium (a key alloying ingredient for beer can material) was fraught with danger. Price fluctuations were crazy, and there was little or no protection against the handful of Chinese producers simply reneging on promised deliveries if the price went up. The problem was that China produced something like 90% of the world’s magnesium, so there was nowhere else t go.
Coking coal is an important product for China’s domestic steel industry, but I wouldn’t have thought that it rated as highly as major producers such as Australia and South Africa. In any case, China is a net importer of coking coal, as it is unable to produce enough for its own steel furnaces.
On the other hand, fluorspar is a hot topic. It is used in a wide range of industries, but in our space, its most important market is the ALF3 sector. Interestingly, China recently dropped its quota system on fluorspar exports. But the real problem is not in the export of the material, but in the extraction. For the last 2 years, China has been putting quotas on the total volume that its mines may produce. This year, the central authorities increased the fines for those mines that exceeded their quota. The industry insiders that we spoke to told us that mine operators were running scared of the fines. Perhaps its a little sarcastic, but I wonder if China will readily agree to lift all export restrictions on this item (and others in the same boat), safe in the knowledge that there isn’t much material to export. After all, China’s priority on this as on so many other policies, is to look after number 1.
Yesterday, I had the chance to visit a producer of grain refiners and master alloys for the aluminium industry. This was a very well run plant, with a good focus on quality.
The plant sells more than 30% of its production to overseas markets, including USA, Europe and the Middle East.
But I got a surprise when touring the factory. Their stocks of raw material, namely aluminium 25kg ingot awaiting melting, was mostly labelled “Product of Nalco India.”
I asked the General Manager why he buys metal from India when he has so many suppliers to choose from much closer to home. His answer - he uses imported metal to make his export orders.
There is a 15% export tarrif on exports of unalloyed metal, but none on alloyed metal, which his metal clearly is. But there is also a domestic sales tax of 17% on domestic metal purchases, which he can avoid by effectively tolling the imported metal.
The grain refiner industry is not big enough to make a serious impact on total metal imports and exports. We estimate China’s exports of grain refiners and master alloys is probably around 20,000t. But this particular plant is owned by a company that makes alloy wheels for the auto industry worldwide. The wheel factory we saw yesterday, while visiting the grain refinery factory, produces 2.8 million wheels per year, mostly for the export market. Although the plant is one of 6 that the company owns, they told me that they are only the third largest producer of alloy wheels in China. That’s a lot of export metal.
The following story comes from AFP.
China on Thursday defended its restrictions on the export of certain raw materials, countering accusations from the United States and Europe that the curbs amounted to trade protectionism.
On Wednesday, the United States, joined by the European Union and Mexico, asked the World Trade Organization to set up a dispute settlement panel to rule on the restrictions.
“The goal of export administrative measures on some raw materials is to protect the environment and our limited resources,” the Ministry of Commerce said in a statement faxed to AFP.
“The regulations conform to the needs of China’s own (sustainable) development, while also advancing China’s efforts towards the sustainable development of the global economy.”
The United States has said the materials at issue were bauxite, coke, fluorspar, magnesium , manganese , silicon metal, silicon carbide, yellow phosphorus and zinc .
The materials are key inputs for numerous products in the steel, aluminium and chemical sectors across the globe.
The United States and the 27-nation EU filed an initial complaint at the WTO on June 23, and Mexico joined the consultations on August 21.
“The products being disputed actually form a very small percentage of Sino-US and Sino-EU trade,” the Chinese commerce ministry statement said.
“To believe that the Chinese measures are harming the US and EU steel industries’ recovery from the global financial crisis is overstated.”
The statement further said China was opposed to trade protectionism and was in full conformity with WTO trade rules.
One of the complications of publishing data from China’s official sources is that one never can be sure of the accuracy of the data. GI-GO applies in China at least as much as it does anywhere else in the world*.
I have received comments from people in the last month or two that the prices showing in our reports always seem lower than what the market is actually paying. That’s bad news for the traders and their clients. The client thinks he has been over-charged, and beats up on the trader.
The data we reproduce is from Customs Dept, but we have been worried that maybe there’s a wrinkle somewhere between the commercial contract and the Customs declaration. And we have found one.
Anodes were until very recently subject to a 15% rebate. The good folk in China’s Customs Dept knew this and assumed (rightly or wrongly) that the prices being presented to them were slightly inflated, in order to extract a few extra RMB out of the Government. So they would each month conduct their own review of the market to establish what the price would have been back when the contract was written. They then used this information to adjust the entry price.
The effect of this action (apart from stopping rorting of the rebate) has been to insert a time delay of a couple of months in the pricing picture. The prices we quoted for June’s exports, for instance, are more likely to have been accurate for March or April. Conversely, should the market price turn down, we aren’t likely to see this in the Customs data until 2 - 3 months later.
We understand that the practice will continue for at least several more months, despite the rebate stopping, partly because some suppliers are still eligible for the rebate. I suspect the gap between contract prices and reported prices to close after the new year.
So if you have been beating up on your anode supplier based on the information we published, best to find some other subject to beat him up about!
* GI-GO = Garbage In - Garbage Out.
In an announcement posted on Friday, the Chinese Government has announced new export tax increases on a range of goods, including coking coal and coke. Petroleum coke has not been included in this announcement, but the market maintains that Chalco’s proposal (which we reported last week, see below) will be rolled out some time before the end of the year.
Coking coal exports were taxed at 5%, but this has gone to 10% effective August 20. Coke is now taxed at 40%, up from 25%, also effective the same day. One of the other products which was caught in the new edict was aluminium alloy, which cops a 15% tax.
These moves are all part of the government’s attempts to control the energy supply situation. Energy supply is not keeping up with demand, and a number of blackouts have already occurred around the country this summer (though not in Beijing, unsurprisingly).
Meanwhile, exporters of green and calcined petroleum coke should not take too much joy from the recent announcement. The indications are that the government has chosen to put the energy controls into place in a step-by-step approach. Local analysts are predicting that pet coke will incur a tax penalty sometime before the end of this year, and possibly as soon as in the next few weeks. The tip is for a 15% tax on pet coke, which apparently was the number submitted by Chalco in their submission to the Government.
In a new blow to foreign buyers of Chinese coke, the domestic market is rife with rumours of a new export tax on pet coke. The story goes that Chinalco has proposed to the Government that petroleum coke exports should bear an export tax (exact amount unclear), the argument being that China needs to limit its exports of energy products.
It is said that the real reason for Chinalco’s show of nationalistic concern is that they are reeling from the rocketing price increases that we have all seen these last 12 - 18 months. One way to take the pressure off the price is to weaken demand from foreign sources, making more available for the domestic market and thereby shifting the supply-demand equation.
Given the huge shortages of coal, the previous actions by the government on exports of aluminium and other energy-intensive products, don’t be surprised to see the Government accept Chinalco’s suggestion. We will keep you posted as more news comes to hand.
Also, an update on the previous post regarding the export rebate for anodes. Previously we reported that the rebate was still available for those exporters who presented their contracts for registration with the authorities. The contracts had to be dated pre August 1, 2008 with fulfillment prior to December 31, 2008. Now it has been confirmed that only those contracts with fixed prices are eligible for the rebate. While this makes logical sense, it also reduces the number of actual contracts which can be registered.
The rules applying to exemptions relating to the recent scrapping of the export rebate have now been published. Contracts written prior to August 1 remain eligible for the rebate. To remain elegible, the supplier/exporter must register the contract with the authorities prior to August 15. The contract must be filled before th eend of this year. Shipments in 2009 will not be eligible for the rebate even if th econtract has been registered.
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