Monthly Archives: September 2008
Sichuan Aostar aluminum has reportedly cut one third of its production from this week due to the market slump. It loses RMB2000 per ton of aluminum production at the current market price of RMB15,500. Aostar’s annual aluminum production capacity is 125,000 ton. It will shut down 50,000 ton.
In addition, the smelter has a self-supplied hydro power station. Another reason for the plant reducing production is water supply, which will shrink in the winter season.
If the situation continues to worsen, they may consider to further close the production line to 1/2 capacity. It was expected to resume the closure production capacity in April 2009.
On the other hand, the president of Chalco (Aluminum Corporation of China) said Chalco does not have any plan to reduce electrolytic aluminum production on a large-scale, though the market is still going down. Due to the downturn of aluminum market, 20 key Chinese smelters committed to reduce aluminum production 5-10% in July. But despite the cutbacks, the aluminum price has not turned around.
The Yichuan Electric Power Group smelter in Henan province postponed their start-up which was originally scheduled to start in early July. Also the smelter did not re-start a number of pots which were down for relining. In addition, Shenhuo Aluminum, also in Henan province, has closed 12 200KA and 10 350KA pots, and have delayed the restart of their relined pots. Yunnan Aluminum has not resumed 20 relined pots.
Chuangyuan aluminum in Hunan province has closed a number of pots.
Despite these closures and delays, metal inventories are showing no signs of falling.
On the demand side, most analysts are predicting an improvement in demand following the National Week holidays. Long term there are significant milestones ahead for Chinese domestic demand, including the Shanghai World Expo in 2010 and the Asain Games in Guangzhou the same year. In addition, Beijing has announced the construction of 6 new subway lines covering 360kms of track. This is in comparison to the 149kms of track built for the Olympic Games.
Meanwhile construction sites around the major cities are resuming in earnest. many major construction projects had been delayed due to the Olympics restrictions. these restrictions had a knock-on effect from Beijing, due to the many steel mills that were closed, the bans on heavy transport on any major arterial road that approached Beijing, and the stopping of industries such as cement.
Green coke
Last week low sulphur coke (1A, 1B) price took a big step down, dropping 150-200RMB/Ton. Inventory levels have remained high and show no prospects of droppling. Last week, Daqing restarted, though product is not yet ready for sale.
Moderate sulphur coke (2A, 2B, 3A) dropped up to 280RMB/Ton, due to the same problems as for low sulphur coke. Shengli Oil refinery restarted during the week, meaning more coke coming into inventory.
High sulphur coke by up to 170RMB/Ton. Across the industry, inventories are climbing but demand is dropping.
Calcined coke
Due to the price decreases in green coke ,the price of calcined coke is also going down. Low sulphur calcined coke dropped 300-400RMB/Ton; Moderate sulphur coke price hasn’t fallen as yet, with some analysts reporting that suppliers are watching the market, in hope that perhaps the slide will stop.
High sulphur calcined coke price dropped 50-100RMB/Ton.
Anode
Anode prices started to drop last week, but not on the official market. Although quoted prices remained the same, deal prices are down by up to 300RMB/Ton.
Aluminum
Last week the price of Aluminum (Chalco) slipped to 16000RMB/Ton. Some small smelters are already running at a loss at this price.
Green coke prices continued to fall last week. Fushun refinery, which produces low sulphur coke has now dropped prices by RMB800 in two weeks. Medium-sulphur coke prices suffered less, but it’s clear that individual refineries are constantly adjusting their position relative to each other. All the signs are that the refineries themselves are not quite sure what’s happening, or what’s likely to happen in the coming weeks. They seem to be reacting primarily to inventory levels rather than to a strategic position.
Several smaller refineries have taken the option to pull their cokers down for maintenance through this period of uncertainty. Major refineries which are currently not producing coke include Da Qing, Liaohe and Shengli.
Calcined coke prices are remaining stable despite the slide in green coke, as are anode prices. But this postion is more likely due to the market’s desire not to telegraph lower prices. More than likely the actual trades are happening at a discount to the published prices.
Please welcome Charlene Qu to the AZ China team. Charlene joins us as a market analyst, and comes to us with a stong background in researching and analysing the Chinese market.
The team is Paul Adkins, Jenny Chen - Market Analyst, Charlene Qu - Market Analyst, Sara Medici - Marketing. In addition, we have the rest of the AZ China team supporting us - Janet Zhu, Lolly Luo, Wang Bei and Sampa.
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.
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