Monthly Archives: October 2010
Despite the scare-mongering of some analysts, the aluminium production numbers for September show a different picture than is widely reported.
September came in at 1.308 million tonnes, or 43,630 tonnes per day. Here at AZ China, we actually expected it to be slightly lower. But with the metal price rising, smelters are now looking to grab some black ink, after months of the red variety.
The Chinese Government’s actions to reduce energy intensity have caused some smelters to reduce production, but the bigger result has been in the headlines around the world. Analysts and commentators, sitting outside China, have predicted everything except the end of the world as we know it.
The truth is somewhat different to what is being said outside China. Production is still on track to close out at 16.0 - 16.5 million tonnes. True, that is 1 million tonnes lower than we predicted at the start of the year. But that is the extent of the energy cutbacks.
We expect up to an additional 300,000 tonnes of reductions in the remaining 3 months. We know it is this much, because we have spoken to the affected smelters. But we also know that others are bringing capacity back into the market to make the most of the price. Shanghai was at RMB16,400 on Friday. While this is still RMB600 lower than the break-even point for most smelters, it represents a good deal, compared to what the price will be in the new year. That’s when all that constrained capacity will come back to the market, along with up to 7 million tonnes of new capacity.
Want more information about what is really happening, as opposed to what some analysts are claiming? Contact us at AZ China.
UC Rusal has announced that the first phase of their new hydroelectric power station and aluminium smelter is complete, with the smelter set for first metal pouring in 2013.
The smelter is deep in the Siberian region on a major river, and will enjoy low cost power, although capital costs will finish at around US$3.5 billion.
A fire has broken out at the same CNPC (PetroChina) terminal in Dalian as the major oil spill in July.
Local media has reported that the fire was in an oil storage tank that had been emptied prior to dismantling. There were no reports of environmental damage, although firemen reported that strong winds were hampering their efforts to put out the fire.
The terminal in Dalian suffered an explosion in a pipeline in July, which according to some sources, caused 60,000 tonnes of oil to escape into the sea there.
The reports of this fire did not mention any disruption to oil supply or processing.
China’s aluminium industry is gradually shifting westward, with new smelters opening in Gansu, Qinghai, Ningxia and elsewhere. Even down south in Yunnan province, a new smelter of 1m tonnes is on the drawing boards.
But what of the carbon needed in the electrolysis process. Traditionally, the best carbon inside China has been in the north, an area mostly controlled by CNPC (PetroChina). But the biggest volume recently has been in the east, with imported crude oil contributing large amounts of feed for Sinopec’s refineries along the Yangtze river.
Cokes in the south of China have always been regarded as non-anode grade, with high sulphur and metals and poor structure. Even the new 1m tonne coker at CNOOC’s Huizhou refinery produces coke which is low in sulphur but with such poor structure as to be unfit for anodes.
But a new force is set to change the balance, and could also make life a whole lot easier for all that new smelting capacity out west.
China and Myanmar have agreed to build an oil pipeline through the latter country, delivering oil purchased from the Middle East and Africa into Yunnan and other South West areas of China.
The pipeline, owned 51% by CNPC and 49% by Myanmar, commenced construction in June and will travel more than 1600 km. It will move 22 million tonnes of oil per year (440,000 BPD) and will be serviced by a new oil terminal capable of berthing tankers up to 300,000t.
This link was my source.
Many of you will remember that Alcoa has a small but significant presence in the downstream market here in China. Their Qinhuangdao rolling mill is apparently at wolrd class levels, at least according to some of the Australian expats that worked on it until about 12 months ago. (It was a hoot to meet here in Beijing people I had worked with in Point Henry 30 years ago.)
Unfortunately for Alcoa and their customers that take metal from that plant, the government has ordered it to cut operations back by 50%, as part of the energy cutbacks.
I understand that the management team approached the local government authorities, asking for protection or relief from the measures. The government’s response was, “we have 9000 factories in our district, why should yours be special?”
According to a South African newspaper, a court case in that country has led to smelter electicity costs being presented as evidence.
The case involves a BHP Billiton and Eskom, the national electricity provider. They are being sued by a public interest group to reveal the price basis for the electricity tariff for BHPB’s smelters there.
BHPB had fought to keep the prices from being presented, but the court allowed for a Deutsche Bank report to be tabled.
In the Deutsche Bank report, BHPB’s Hillside smelter was ranked as having the lowest electricity price out of 159 smelters surveyed. In the press report of the document, Hillside is said to be paying US$257 per tonne of aluminium produced. Until earlier this year, the only other plant to come in under that was Mozal in Mozambique. They had a price of US$251, but Eskom has since introduced a higher tariff, pushing Mozal to fourth on the list.
With power costs at that level, it is no wonder BHPB retains those smelters, when all their other activities involve digging things out of the ground.
We at AZ China are wondering what’s in the water….
Two reports published this week make claims which simply do not stand up to reasonable scrutiny.
My good friends at Harbor Aluminum have come out claiming that China will be a net importer by next year, with imports growing staggeringly by 2015. Their report cited further production cuts which on top of those already announced.
I have to say that I admire the work that Jorge and the people at Harbor do, but quite simply, he is wrong. Metal production is being cut back, on the margin, but just as many producers are now re-entering the market, eyeing the improved metal price.
In any case, those smelters that have had cuts have been told by the government that it is only until the end of the year. They have been told to expect to see new stimulus packages in 2011. On top of that, there are several very large smelters ready to come on line - as soon as the heat is off. We expect metal production next year to push 20 million tonnes. There is no way China will be a net importer next year, simply from the demand/supply equation viewpoint.
Then Platts comes out with their alumina bulletin claiming that Chinese smelters are liquidating alumina inventory, and that vessels are being re-sold and diverted from China. One wonders how long the Platts reporter has been watching the industry.
Of course cargoes are re-sold from time to time. That has been happening a long time. Of course Chinese smelters sell alumina from time to time. Whenever there is an arbitrage situation, where they can take a profit by playing the difference between domestic prices and import prices, that is what they will do. It is no different to what was happening in iron ore. That was why the ore suppliers moved to get away from the old pricing model, because the old pricing model created an artificial secondary market. Now, surprise, surprise, the same suppliers, along with Alcoa and anyone else long on alumina, are saying that they want to do away with the current alumina pricing model. Gee, I wonder why?
The other thing that the Platts reporter forgot to do was to check and see if there were any issues on the supply side. For instance, any tightness caused by operating problems at certain refineries.
My reading of these reports is that too many people are taking official Chinese data, such as from Antaike and other sources, and accepting the data at face value. If that is what is happening, that is shaky ground on which to go public.
We spoke to some smelters yesterday. Their reaction was to say, yes, there are some additional, small, temporary cutbacks, but it is business as usual, alumina prices are steady, and metal production set to explode as soon as the new year comes around.
News from around the Chinese petcoke and related markets:
* CNPC has recently announced that their expansion of the Liaoyang refinery, in Liaoning province in China’s north, has now been completed. The refinery will be the delivery point for Russian crude oil coming down the controversial pipeline that is due to start pumping this month. The refinery will take 200,000 barrels of Russian crude per day. Liaoyang makes grade 2B petcoke, and produced about 200,000t last year. It seems that the expansion did not include an upgrade to the coker. No information on what the Russian crude will do for the grade of coke.
* The other refinery that is in the Russia play is the new JV plant in Tianjin. To be built within 2 years, the plant will be part of the CNPC stable. The Russians wanted it to be fed by Russian pipeline oil, but China countered by committing other refineries to the pipeline. The refinery will cost $5bn to build, and will be capable of processing 13 million tonnes of crude per year.
* Sinopec has announced that it will run the Hainan Isalnd refinery at full speed from now on, in response to increasing demand. This refinery does not make petcoke, but it is a good sign that fuel demand is bringing increased refinery capacity into the market. This can only be good for petcoke supply.
* Sinopec’s Maoming refinery, in China’s far south east, will close one of its two cokers for maintenance next month. This refinery produces about 1m tonnes of coke per year, but it is all high sulphur fuel grade coke.
The Golden Week holidays here in China have created a small delay for the preparation and publishing of this month’s Black China Report. We rely on China Customs to issue the trade data for each month, but they have told us that the information is not ready yet. We normally receive it within the first few days of the new month, but the Golden Week, coming on top of the Mid-Autumn Festival, seems to have slowed things down more than normal.
We apologize to our subscribers for the delay. We will get it out to you as soon as we are able.
Meantime, keep reading this blog for industry updates.
News around the magnetic fields….
* India’s Vedanta Aluminium is still in the wars with the State Government of Orissa. Vedanta was looking to mine bauxite in that State, on the north east corner of India, just below Calcutta (Kolkata), but the Ministry of Environment has stymied the project. As a result, Vedanta has announced a US$2bn reduction in their capital plans. This has an immediate impact on their Jharsuguda-II and Korba smelter projects, where first metal tapping has been deferred.
* Vietnam is entering the alumina supply market, with a new refinery scheduled to commence production in February 2011, and a second refinery to follow in 2012 or early 2013.
* Mubadala is examining the viability of smelter project in Malaysia. Mubadala is the state-owned investment fund of Abu Dhabi.
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