Monthly Archives: February 2010
Source: Business Standard
India’s aluminium industry may be moving towards overcapacity, since supply is likely to grow in excess of demand going forward. Considering that all aluminium projects would begin commercial production with expanded capacity as planned, there could be at least two million tonnes of additional capacity for exports by 2013.
“India’s aluminium production will more than treble to 4.4 million tonnes by mid-2012 with new capacities coming on stream, along with requisite captive power generation capacities,” stated a Fitch Ratings report recently.
Vedanta, Hindalco and Nalco together produced 1.5 million tonnes of the metal for the year ended 31 March 2009, a growth of 9 per cent year on year. Though higher cost capacities were shut down (in Vedanta’s subsidiaries Balco, Malco and Vedanta Aluminium) to the extent of 0.14 million tonnes, additional capacities from Vedanta Aluminium Ltd in Orissa, along with incremental capacity expansions at Nalco and Hindalco compensated for the loss. For eight months between April and November 2009, total aluminium produced was 0.98 million tonnes, a rise of 16.6 per cent over the corresponding period in the previous year.
“Although demand outlook for aluminium is likely to grow in line with the economy, supply is estimated to grow far in excess of demand, resulting in overcapacity in the domestic market over 2011-2013,” the report added. Large power and housing projects, which use aluminium extensively, depend largely on growth in economy and, thus, spur consumption of the metal.
According to an Icra report, “With sharp increase in capacity over 2010-13, India will start massive export of aluminium. The country could by 2013 be an annual exporter of 2 million tonnes of the metal, assuming the planned capacity expansions become operational as currently envisaged.” It added that the current demand-supply situation for aluminium was largely balanced with consumption in line with existing production, and a relatively small volume of exports.
India’s per capita consumption of aluminium is 1 kg as against 30 kg in the developed world, it stated in the report. “The industry is exploring new application areas and untapped demand potential, which may result in greater preference for aluminium in the future,” Icra added.
The expansion projects are subject to execution risk given their scale, greenfield nature, and regulatory risks with regard to mining approvals. These could delay some of the projects, or postpone indefinitely. However, the risks are partly offset by the fact that the new capacity would have low, globally competitive costs once operational. The surplus production would be exported.
The following article comes from Moscow Times.
United Company RusAl’s shares continued their rally on Tuesday, bringing their two-day gains to more than 10 percent, after the company said it planned to increase aluminium production this year.
RusAl’s stock closed at 8.3 Hong Kong dollars ($1.07), or 3.5 percent higher, adding to Monday’s gains of 6.9 percent for its biggest surge since trading started on Jan. 27. But the recovery was still not enough to recoup early losses for IPO investors, who remain down 14.1 percent.
In a statement released Monday, RusAl said it expected to increase aluminium production by 3 percent in 2010, compared with the previous year. The company also plans to increase alumina output by 7 percent this year.
Separately, RusAl said Friday that it had reached a long-term cooperation agreement with the new Guinean government, easing fears of continued disruptions of bauxite supplies from the impoverished West African state. The material is a key component in aluminium production.
“The trend of emerging from the global recession based on growing orders from our clients in Europe and the United States, as well as active economic growth in Asia, give rise to our optimism regarding the perspectives of the aluminium industry,” RusAl CEO and co-owner Oleg Deripaska said in the statement Monday. “We expect that the stabilization that’s appearing will be replaced by higher-than-anticipated growth of metals consumption relative to production.”
RusAl said its plans to increase output were also based on analysts’ positive 2010 outlook for the aluminium market, which would see a substantial growth.
“A number of experts are forecasting that 2010 will see considerable growth of the aluminium market generated by rising demand from the automotive and packaging sectors,” the statement said, adding that positive dynamics on the market would be driven by the demand from China and India, as well as from developed countries.
Aluminium prices crashed along with demand from industry in late 2008 and early 2009, falling to below $1,300 per metric ton in February 2009, from highs of more than $3,300 in July 2008. Three-month contracts on the London Metal Exchange closed at $2,151 on Tuesday.
There are reasons to believe that RusAl will achieve its production goal, said Nikolai Sosnovsky, a metals analyst at UralSib.
“The increase of 3 percent is not much. RusAl will probably manage to sell such a production volume. Prices are rising and many companies will return capacities. Since RusAl is one of the lowest-cost producers, I think it will manage to return more capacities than the others,” Sosnovsky told The Moscow Times.
RusAl also said its aluminium output dropped by 11 percent in 2009 and amounted to 3.9 million metric tons, compared with 4.4 million metric tons in 2008. Output of alumina – which is primarily used for aluminium production – totaled 7.3 million metric tons, declining by 36 percent from the figure of 11.3 million metric tons in 2008.
Bauxite production declined by 41 percent to 11.3 million metric tons, from 19.1 million a year earlier.
Sosnovsky said RusAl’s year-end production results did not come as a big surprise.
“According to all prognoses, production will exceed demand over the next several years. That’s why RusAl, like many other producers, was cutting output according to the plan,” he said.
RusAl had to cut production because of negative market factors last year, including a 35 percent drop in aluminium prices, the company said in the statement.
Deripaska said the company had become more competitive thanks to its program to cut expenses, a successful debt restructuring and the share listing in Hong Kong and Paris. RusAl reached agreement to cut its debt burden from $16.8 billion to $14.9 billion ahead of the IPO and subsequently used $2.14 billion from the listing to pay down its obligations further.
RusAl raised $2.24 billion in the IPO, selling its stock at 10.8 Hong Kong dollars per share ($1.39). The shares plunged, however, in their first day of trading and lost almost 30 percent of the offering price earlier this month.
On Friday, the company said it had signed an agreement with the Guinean government on establishing a joint commission to provide “a stable basis for long-term and mutually beneficial cooperation.”
The commission will start working by March 1, the statement said.
In January, the former mining minister of Guinea, which is the world’s biggest producer of bauxite, demanded part of the proceeds that RusAl had earned from its IPO, saying the company owed the Guinean government as much as $860 million in damages.
RusAl denied the claims, noting that the former minister, Mahmoud Thiam, no longer represented the government.
Thiam was part of the government of ousted military junta leader Moussa Dadis Camara, who left the country late last year for medical treatment after an assassination attempt. Camara’s government was replaced by the military junta last month.
The following article comes from London’s Financial times.
Saudi Arabia’s oil exports to the US last year sank below 1m barrels a day for the first time in two decades just as China’s purchases climbed above that level, highlighting a shift in the geopolitics of oil from west to east.
The drop in US demand for oil from the kingdom, traditionally one of its primary sources, is the result of overall lower energy consumption but also greater reliance on imports from Canada and Africa.
China’s economic growth, meanwhile, is prompting Beijing to buy more Saudi oil, a trend Riyadh has encouraged through refinery joint ventures.
“China offers demand security, something that for a long time the oil-producing countries including Saudi Arabia have called for,” said John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh. “As global demand has been picking up in the east . . . Saudi Arabia has been looking east.”
Barack Obama, US president, wants to reduce US dependence on foreign oil and encourage renewable fuels. Meanwhile, Saudi Arabia wants stable markets for its oil reserves.
The divergence will provide the backdrop as Steven Chu, US energy secretary, visits Riyadh on Monday. His agenda reflects Washington’s focus, with an emphasis on technology research rather than oil politics.
The drop in Washington’s reliance on Riyadh’s oil is unlikely to alter dramatically their relationship, at least in the short-term. Analysts say oil is a fungible commodity and any supply shock in the Middle East will still affect the US economy in spite of lower imports from Saudi Arabia. On the other hand, China’s rising demand for Saudi oil, on top of already large purchases of Iranian crude, could boost Beijing’s interest in the region.
The US imported 998,000 b/d of Saudi crude in the first 11 months of 2009, the lowest since 1988, according to official data. Analysts expect that December figures will confirm the drop. The fall came as Saudi oil exports to China hit a record in December above the psychologically significant 1m b/d level. Beijing has doubled the amount of oil it buys from the kingdom over the past three years.
For years, state oil company Saudi Aramco “was under strict orders to be first in sales” to the US, a strategy that was “political and not commercial”, according to Amy Myers Jaffe and Jareer Elass at Rice University in Houston. That changed in 2003 after the Saudi ruling elite relaxed the strategy.
Thursday lunchtime, SeaTac airport. We had our last meeting of the TMS 2010 program this morning. Yet another 7am start, followed by an hour wait for a 9am that didn’t show.
All in all, we did pretty well as far as SNAFUs, stuff ups, double bookings, no-shows and so on were concerned. A couple of wrong hotels, which required a quick sprint to the correct hotel Fortunately this year’s hotels weren’t too far apart. And the traipse from the Westin to the Sheraton allowed us to say a quick hello to the many others doing the same rounds in reverse direction. Onl two no-shows, with one apology (due to illness).
TMS is good because it gives a chance to meet old friends, and make new friends. It is always good to say hi to Mike Tillman for instance. I reckon Howie and Karen and Frank win the award for the people I have seen most often at TMS. I made new friends from Brazil this year, including Guilherme, Anderson and Marcus. Although I did not have a scheduled session with them, the Simonsens are always at TMS. (And every year, Jorgen says he will slowing down in the coming year.)
And so we all pack up and head to the airport. Time to collect thoughts, compare opinions, and prepare the contact reports.
Which leaves just one thing to say…. See you in San Diego.
Wednesday night is always a welcome night at TMS. It is the end of the round of meetings, with just a few leftover meetings for those who (like us) couldn’t fit them all in the space Saturday to Wednesday. It is the night that we can all finally relax, whip off the tie, kick off the shoes, throw the jacket over the back of the chair, and kick back.
Ah, feel the relief (he says, sipping a glass of red wine, barely minutes after finishing the last meeting).
There’s only one change that I would like to see. Those people leaving early should be given a secret exit from the hotel, so that the rest of us don’t have to see them leave. This afternoon, waiting for my 3pm meeting, I noticed Ivo looking very relaxed, suitcase in tow, heading for a taxi. Damn, I wish that was me, I thought. So a secret exit for the early leavers, or a rule that they leave prior to 6am.
Next year, I am going to book my meeting with Ivo for Thursday morning.
Seen wandering the Sheraton lobby yesterday for at least a couple of hours was a chauffeur carrying a sign reading simply “Simonsen”. After he had made several passes, one lap every 20 minutes, your humble blogger approached the guy and helpfully suggested that if Morten and Klaus were in the area, you would surely know. One thing about my old friends from Denmark - they are not easily overlooked!
It reminds me of a time when we three plus Jorgen were dining in a very nice restaurant in Grenoble, France. After a while, the manager came over and told us that other diners were complaining that we were too loud. The father and two sons found this to be uproariously funny. Truly, they were nowhere near as loud as I have seen them in other restaurants.
Another dining expereience, this time in Newcastle, finished with Morten and Klaus joining Professor Ici (not his real name, but anyone who knows him will know that nickname) in singing crooning love songs to other diners, while attempting a little pole dancing. Just a regular evening when dining with the Simonsens.
Monday night is traitionally the BP party night at TMS. In Seattle TMS2002, we were bussed to a Native American feast, with music and dancing.
This year we were bussed to the Space Needle. A majestic tower that has all sorts of records and highlights that I paid no attention to, the tower looks ok at night.
The elevators took us to the “banquet floor”, about 1/3 of the way up, where we had a wide variety of drinks, and an excellent buffet of seafood, sushi and meats. As usual, the party broke into a gazillion small groups, with individuals migrating between groups.
But after dinner, the duelling pianos started up. Similar to Howling at the Moon or Dicks Last Resort, the two pianists soon had the party swinging. Requests flowed, as did the pitch of the singing.
The highlight of the night was the final song. Karen Prince smiled sweetly, the singer swooned, and announced that Neil Diamond would close the night. The crowd was soon up and about singing and waving hands in the air. So good, so good, so good. (I took some video of the song and the singing, but it’s too big to upload. See me for proof.)
The only disappointment was that Michael Wrotniak wasn’t there to do a duet with Karen.
Sunday night at TMS is traditionally the night that industry folk get together to relieve Jacobs of their entertainment budget. A sign of the commitment made by industry people to assist the Jacobs team to get rid of the drinks and nibbles, is that while more than 260 people registered for the conference on Friday, in excess of 550 came along to the reception. Cruising around the room, it was clear that attendees were keen to remove the food and drink, regardless of the personal sacrifice to themselves. The team at Jacobs can only be honoured and humbled by the effort put in by the industry to consume their entertainment budget in one night.
Slightly more seriously, the night is also an occasion to renew acquaintances and say hi to friends that we haven’t seen in 12 months. For your humble blogger, that included people such as Sakon-san, a man I have always admired and respected.
Mike and Tushar found time to talk to Jenny from AZ China.
Guess who spilt red wine on his shirt?
Dan: “I’m a net seller at that price.” Angela: “I am listening, I really am.”
Sunday lunch time, and 3 meetings later. At least it isn’t raining this morning, so the traipse from the Westin to The Sheraton is not so difficult.
Two interesting messages this morning. Coker incentives are too low, thanks in part to the Obama Administration’s mooted rules regarding the refinery industry. The problem is structural and therefore not temporary. As a consequence, all eyes are turning to China.
The problem is, Chinese eyes are turning to the US. Coke is short and over-priced in China right now, and every Chinese trader we have spoken to so far is looking for US coke to import. A classic case of mis-matched markets.
Message to the folks back at AZ. Let’s start tracking a new metric, and call it “China Export Incentive”.
Today only 10% of China’s coke is exported. In an economy growing at 8% - 10%, it won’t take much for the relatively small amounts of export coke to be consumed domestically. The only real reason for the Chinese to maintain an export market is if there is sufficient sustained profitability to make it worthwhile.
Domestically, anode grade green coke is selling at US$240 a tonne EXW. To export this coke, there is another $40 - $50 costs for transport to the port, paperwork, cost of LC and so on. Exporters need to be able to get a price of at least $280, otherwise there is always the risk that the domestic market will be too attractive. For us on the other side of the transaction, while a spot deal might be okay from time to time, anyone that wants to do business on a sustained basis needs to build that “incentive cost” into their pricing.
AZ China will start monitoring that metric, starting next month. (This is not a sales/marketing plug…. no really, I mean it. Hey, why is my nose growing longer?)
This is even more important for CPC. While the local costs are the same (or a dollar or so more for covered storage at the port), the base cost for CPC inside China is sitting at US$280 at the moment. Now we are talking about a base cost of $320 plus. Since AG coke supply is not growing fast enough, and the aluminium industry in China is growing too fast, the true incentive to calcine to international quality standards, and to export, is much higher. As are the risks. But this is increasingly looking like a “fact of life”.
Apart from coke, the other big question doing the rounds today was, who was that woman with Holger?
The answer is Yasmin. Not only is she sporting a new hair style since TMS San Francisco, she has shaken off a few kilos.
20 to be precise. She looks great! Mike Stewart is also looking a little hairier than the last time I saw hi,, having gained a goatee.
Holger on the other hand, has not changed a bit.
- Yasmin tells us she lost 46lbs.
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