Monthly Archives: January 2010
Alcoa said Thursday that it plans to shut its two aluminium smelters in Italy by Feb. 6, but could restart them if the company is able to secure power for them.
Alcoa announced in November that it would suspend operations at the smelters temporarily after the European Commission prohibited electricity subsidies that the Italian government was providing, claiming the smelters would operate at a loss without them.
“If we are able to secure power, we would want to restart both smelters,” the company spokesman told Dow Jones Newswires.
Talks between the company and government have been ongoing, Alcoa said.
The two smelters have a combined annualized capacity of 194,000 metric tons of aluminium.
The Chinese Government has scrapped the export quota on fluorspar, effective January 1st. The export quota had been progressively cut over the last several years, from over 2 million tonnes per year to around 500,000 tonnes.
That’s the good news. The bad news is that the Government is set to announce a new tax on scarce resources, such as fluorspar. Allegedly, the tax will be set at 15%, and will be introduced in March.
It’s not clear yet what other comodities fall into the category of “scarce”, and therefore might be subjected to this tax.
This comes as more bad news for Chinese producers. Already saddled with huge over-capacity, lack of orders for export, and being forced to sell below cost, the prospect of getting export customers to accept the increase is already making the industry nervous. One VP told me he is already facing problems with his clients rejecting price increases due to raw materials increases.
We estimate that the industry lost RMB300 million in 2009, with the biggest manufacturers making the biggest losses.
It is no surprise therefore, to hear that some producers have tried to re-kindle interest in a price-fixing cartel. A similar move occurred mid 2009, but quickly died when members started selling below the floor price. This time, it seems the cartel is allowing members to offer rebates and other back-end incentives, but must keep the transaction price as agreed. For high quality material, the floor price has apparently been agreed to be RMB6600, while for second-tier material it is RMB6300.
We understand 8 producers have so far agreed to join the cartel.
TMS is one of those strange events that comes around every year. The initials stand for “The Metals Society”, an organisation in the USA which holds an annual conference/convention. This year it will be held in Seattle, February 14 - 17.
Thousands of technical people from around the world will converge on the convention centre to hear papers from peers on an incredibly broad rage of topics. While those folks are in the lecture rooms, we commercial people converge on the surrounding hotels for a series of meetings. Since the aluminium and related raw materials markets are global in nature, this event gives buyers and sellers alike a chance to meet and discuss contracts, markets and delivery schedules. But it is not technically correct that we are “attending TMS”. What we are doing is, using TMS as a catalyst for these commercial meetings, but The Metals Society does not get a penny from the hundreds of commercial people that say they will be at TMS this year.
It is quite a sight to see so many dark-suited business people congregating in the lobby of the Sheraton Hotel at the top of each hour, all looking for their next appointment. A couple of years ago, TMS was held in Orlando Florida, so interspersed with these business folk were families, small kids in bathing suits and a whole lot of fun noises.
If you are attending TMS this year, and you would like to meet us, we will be there. Send me an email at blackchina@az-china.com.
A cryptic message from a very unofficial source, but one which is close to the Stern Hu case, has led me to the conclusion that Stern Hu may be released soon. I cannot reveal my source, and I may be reading too much into the comment that was made to me, but when I consider the source, and the message, there are only two possible conculsons. Either my source is going into prison, or Stern Hu is coming out.
His release may be as early as this week.
For those who are unfamiliar with the case, Stern Hu is a Rio Tinto employee who ws arrested July 5 last year on allegations of stealing commercial secrets and accepting bribes.
State-run National Aluminium Company Limited (Nalco) on Wednesday announced its plans to set up mines and refinery project in the Andhra Pradesh and a second aluminium smelter in Orissa.
According to an official statement issued here by the Ministry of Mines, Nalco plans to spend $1.2 billion in the Andhra Pradesh project that would be located in Visakhapatnam district and Rs. 16,350 crore ($3.5 billion) in Orissa that would be located in Brajarajnagar in Jharsuguda distrct for the smelter and a captive power plant. The proposed aluminium smelter will have five lakh tonnes (500,000 tonnes) a year capacity and will be completed in two phases.
Nalco has also signed a memorandum of understanding (MoU) with the Orissa Government for setting up an aluminium park at Angul in a 50:50 joint venture with the State’s Industrial Infrastructure Development Corporation (IDCO) at an investment of Rs. 75 crore.
The proposed aluminium park is expected to promote downstream and ancillary industries that would encourage value addition within the periphery of the plant.
This article appeared in last week’s China Daily. Economists looking for reasons why China’s bubble might eventually burst may need to look at the future of global crude oil pricing. A rise to pre-GFC levels could have disastrous consequences for inflation in China, which in turn is probably the chief threat to the general health of the economy today. Here is the article.
China’s oil imports will continue to see solid growth this year, with more than half of the country’s total oil consumption coming from abroad, industry insiders said.
It is inevitable for the country - the world’s second largest oil consumer - to see a robust increase of imports, as domestic production cannot keep up with rising demand, they said. China’s oil dependency reached alarming levels last year with imports accounting for 52 percent of total consumption, China Business News reported yesterday, citing Zhang Xiaoqiang, vice-minister of the National Development and Reform Commission.Importing more than 50 percent is a globally recognized level for an energy security alert.
The country’s oil imports in 2010 are expected to grow five percent from a year earlier, and the proportion of imported oil consumed may further rise to 54 percent this year, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University. “Domestic production is already at its peak,” he said. “Although domestic companies have accelerated their overseas expansion, the resources they already gain are still limited.”
Customs figures showed that China imported 204 million tons of oil last year, while the country’s total production was 190 million tons.
Lin’s views are echoed by Han Xiaoping, chief information officer of china5e.com, a leading energy website in the country, saying oil imports would maintain a brisk growth in the future. However, importing too much would hurt energy security, he added.
According to a report by the Chinese Academy of Social Sciences (CASS), 64.5 percent of China’s oil consumption is likely to be met by imports in 2020, with the gap between domestic consumption and production as the main reason. Statistics from CASS showed that China’s oil production is expected to stand at 177 to 198 million tons in 2010, and the figure would reach 182 to 200 million tons in 2015. China’s oil production will see a gradual decline after 2020, according to CASS.
China National Petroleum Corp, the country’s largest oil and gas producer, said in a commentary in its online newsletter yesterday that the country’s oil imports would be affected by many factors, such as rising global competition and volatile energy prices.
Chinese companies should avoid competing with their domestic peers in the international market, said the report. Analysts said that China should further diversify its sources for importing oil to find a more sustainable supply. At present the Middle East, Africa and the Asia-Pacific are the three main regions that supply oil for China.
Most readers would have seen the announcement of China’s 2009 GDP yesterday, but you may have missed this little item. I am predicting that the 2009 total of 8.7% will also be revised upwards, but not for some months yet.
For the record, I predicted a result of “8.5% plus”.
This article is from Reuters.
China on Thursday upwardly revised its gross domestic product data for the first and third quarters of 2009.
The National Bureau of Statistics said first quarter GDP was up 6.2 percent compared with the prior reading of up 6.1 percent. Third quarter GDP was up 9.1 percent versus the prior reading of 8.9 percent.
Earlier, China posted fourth quarter GDP growth of 10.7 percent and full-year 2009 growth of 8.7 percent.
The following article appeared in the Economist online edition. Unfortunately, as with many of these articles, the basics are wrong. China will officially announce 2009 production to be around 13 million tonnes. That announcement is due next week. But the official statistics do not include about 1 million tonnes of unreported production. The author says that China will produce maybe 14 million tonnes in 2010, but judging on current rates, it will be more like 17 to 17.5 million tonnes. Total capacity in China, including any remaining idled smelters, new smelters under construction, and moth-balled smelters, is around 25 million tonnes. The gap between production and capacity is not made up of high-cost inefficient smelters. there are a few, but they are too small to make up the difference. Most of the additional capacity is very new.
On the face of things, the aluminium business is recovering swiftly from a nasty tumble. In 2009 the parlous state of the global economy pushed spot prices for the metal down below $1,500 a tonne. In recent weeks they have risen above $2,200—a 14-month high. Demand is picking up, particularly in India and China. Chinalco, China’s biggest aluminium-maker, which had idled 10% of its capacity, said in December that it would restart it all.
Yet according to Michael Widmer of Bank of America Merrill Lynch, an investment bank, aluminium still has “horrible fundamentals”—in part because outfits like Chinalco continue to open smelters. Those who consider the industry’s recovery superficial point to the 4.5m tonnes of aluminium stashed in warehouses around the world, far above the typical level of around 1m tonnes. Even when the price was near its lows last year, the futures market was anticipating a rebound this year. So speculators could buy stocks on the cheap, sell futures contracts at higher prices, and simply store the metal until the contracts fell due.
Much of that metal will come back into circulation in the coming months. Demand, of course, should also rise. This year China, the world’s biggest consumer, will probably get through some 14m tonnes. Rio Tinto, a mining giant, forecasts that China’s consumption will more than double to 31.5m tonnes by 2020.
But the rest of the world’s aluminium producers are hardly rubbing their hands with glee. The country has huge unused production capacity of around 7m tonnes a year. Although the government wants to close less efficient smelters to save energy, local officials, keen to preserve growth and jobs, are slow to follow its edicts. In principle, Chinese smelters are supposed to pay a market rate for the power they consume, which can account for as much as 40% of costs. But they still benefit from cheap land, labour and loans, and often from “captive” power plants fuelled by abundant local coal.
Analysts reckon that China, which unusually imported large quantities of aluminium last year, will again produce a small surplus in 2010. Overcapacity is not restricted to China. On December 1st smelting started at a plant in Abu Dhabi that, when completed, will be the world’s biggest. Other Gulf states, which are also keen to diversify their oil-based economies, and tend to enjoy cheap electricity generated from local reserves of natural gas, are also building smelters. Last month Alcoa of America, one of the world’s biggest aluminium-makers, announced a joint venture with Maaden, a Saudi Arabian mining firm, to build what they claim will be the world’s lowest-cost smelter (presumably thanks to favourable power deals from the government). Qatar and Oman also have plans for big new projects. Dubai and Bahrain already have big smelters. By 2020 the Middle East will account for 12% of global capacity, reckons the Gulf Aluminium Council, an industry body.
Meanwhile, outside China and a few other developing countries, demand for aluminium is projected to grow only slowly. The upshot is that high-cost Western aluminium producers are in trouble as more low-cost capacity comes on stream. Rio Tinto recently closed Anglesey Aluminium in Britain after its power contract expired. Many other European smelters could close because they are unable to strike cut-price new deals for electricity as older contracts run out. The European Aluminium Association fears that two-thirds of the continent’s smelters are under threat. High electricity prices are also likely to put a stop to new aluminium projects in South Africa. Outside China, at any rate, a producer smelts or sinks according to its position on aluminium’s cost curve.
The following article is one of many around the world about the latest statistics release from China. This one is from the Financial Times.
China’s exports rose in December for the first time in 14 months, providing fresh evidence of recovery in the global economy but also placing renewed pressure on Beijing to appreciate its currency.
Following strong export figures last month from South Korea and Taiwan, China said on Sunday that its exports climbed 17.7 per cent, well ahead of the modest increase that economists had predicted. These numbers put China on track to overtake Germany as the world’s largest exporter.
Chinese imports surged by 55.9 per cent in December, the latest indication of buoyant domestic demand in China, although the figures are also likely to increase concerns about potential inflationary pressures. Exports to China’s two biggest markets both rebounded last month, with sales to the US increasing 15.9 per cent and to the European Union 10.2 per cent.
However, the year-on-year comparisons were inflated by the low base of the previous year’s figures. Economists said some of the improvement was due to restocking by companies that had run down inventories. “While December’s export figures are encouraging … a recovery to pre-crisis levels appears some time away,” said Jing Ulrich, head of China equities and commodities for JPMorgan.
Andy Rothman, CLSA’s chief China economist, said a resumption of export growth was necessary before Beijing restarted appreciation of the renminbi, suspended over a year ago in the crisis. He said Beijing was unlikely to act on one month’s figures alone.
But if the export recovery continued, China’s leaders would have the political cover to resume renminbi appreciation by mid-year, with a possible rise of 3 per cent for 2010. “Beijing has been waiting for three things to happen before resuming gradual appreciation: strong economic recovery in China; stability in the US and European economies; and several months of [positive] Chinese export growth, which is important to sell appreciation to the domestic audience.”
Beijing also signalled at the weekend that there would be no near-term tightening in fiscal or monetary policies. Hu Jintao, president, told a seminar that China should continue “pro-active” fiscal policies and “moderately loose” monetary policies. Priority should go “to policies that support domestic consumption expansion, economic growth, economic structure adjustments and projects concerning people’s livelihood”.
The following article comes from Xinhua Agency, and appeared in China Daily today. Be prepared to see big incress in the price of coal.
China’s coal-abundant Shanxi rationed electricity as the province reported the most severe power shortage in three years as the current coal output fell short of demand drove up by the prolonged icy weather.
Two major thermal power plants in the capital city of Taiyuan, namely the branch factories of the China Guodian Corporation and the China Datang Corporation, saw power coal reserves enough for less than the warning level of seven days of use. The bitterly cold weather pushed up demand for resident heating, which prompted a power shortage of near 500,000 kilowatts, local power supply authority has said.
Although having one third of the nation’s coal reserves, Shanxi faced coal shortage due to insufficient production and hefty amount of coal outflow to other parts of the nation, Li Jianwei, deputy director-general of the provincial electricity association told Saturday’s 21st Century Business Herald.
The closure of small pits drove down the coal output, while the production of the large-scale state-owned factories could not make up for the gap, he said.
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