Monthly Archives: November 2010
Buyers of calcined coke have no cause for celebration, thanks to the recent tender that National Aluminium India (Nalco) issued.
Nalco invited 4 Indian companies to bid for 70,000 tonnes of calcined coke. Three of the bidders were well-known capable producers, while the 4th was a tiny Government-owned operation. They refused to allow any other bidders into the tender.
When Nalco opened the bids, they found that the small-fry producer was lowest price, with US$426. But that producer was unable to supply more than a fraction of the total coke on offer. Nalco called on the other bidders to match the low price. All three refused, and stuck to their original price. That wouldn’t be so bad, but the next best price was US$616. Nalco had no option but to accept that price.
Lo and behold, the three successful bidders are now telling the other smelters in India that the new benchmark price is US$616.
Clearly this is very bad news for the rest of the market. The Indian smelters had been buying from China, but had recently returned to the Indian suppliers as the Chinese price started rising. If they go back to China, the Chinese producers will soon find out what is going on in India.
It won’t take long for the rest of the market to then find themselves being hit by $600 prices from two fronts, both Indian and Chinese producers. That in turn will be an invitation for US based producers to move their prices up as well.
Market fundamentals should take over, and drive the price back down to more realistic levels, but the market fundamentals are also set for a shake up. China is set to soon move out of its energy restriction phase, with a big increase in aluminium production in Q1 2011, along with anode demand. Green petcoke prices will likely rise in line with demand from both aluminium for anode grade and cement for fuel grade.
All this because one small buyer followed antiquated purchasing practices, and refused to allow the wider market to take part.
Rio Tinto Alcan plans to spend $3.5 billion to build an aluminum plant in Paraguay, according to Reuters.
The proposed plant will produce an estimated 670,000 tonnes a year, and will employ directly and indirectly up to 14,000 people, according to the report.
Construction is slated to start in 2014, with production commencing in 2016. The plant will use power from the nearby hydroelectric scheme.
No sooner did the announcement come out, than the denial was quickly issued.
Gujarat Foils Ltd, in India, yesterday announced that Rusal had agreed to invest R14,000 crore (1 crore is 10 million Rupees, so this investment has a price tag of about US$3 billion) in a new aluminium complex in its home province.
The complex was said to include a 1 million tonne refinery and 500,000 tonne smelter. Gujarat province is on the far west of India, next door to Pakistan.
The ink on the announcement was barely dry (that’s an expression that will surely die over the ages) when Rusal issued a press release denying the announcement. According to the press release, Rusal “rejects the statement made by Gujarat Foils Limited regarding RUSAL’s participation in the Kutch alumina project. RUSAL has not held any negotiations with Gujarat Foils Limited and has not entered into any agreement with the Indian company.”
That’s an end to it. Or is it? The Gujarat announcement came from Gujarat Foils, but the broker for the deal is said to be Gujarat Mineral Development Corporation. It leads me to speculate, and I reiterate it is only speculation, that while Rusal may not have had discussions with Gujarat Foil, it may have done so with GMDC. The Rusal press release is quite abrupt, but doesn’t mention the overseeing company. Perhaps Gujarat Foil has embarrassed the Russians by prematurely announcing their involvement before Rusal had had a chance to tell stakeholders, bankers and other key people on the Russian side.
Time will tell. But certainly the Russians were very quick getting their press release out.
Comings and goings in the global scene:
* Ghana is to restart the Valco aluminium smelter. According to the press stories, this smelter has 6 potlines, but only 200,000t capacity. The plan is to restart two potlines to begin with. More capacity will be restarted as electricity supply contracts are put in place.
* USA’s Ormet Corporation has announced it will restart two potlines in Q1 2011. (It will take that long to get the lines fully operational.) That will bring Ormet up to full capacity, and will give the market an additional 80,000t of primary metal.
* Chalco has started work on their Guangxi smelter. According to the press release, the new project will add 500,000t of primary metal capacity. Chalco already has a 400,000t smelter in Quangxi, but the press release does not make clear whether the new plant is an extension of this plant or a new stand-alone facility. We will check.
Which major international group with extensive interests in aluminium is looking to invest in China?
Despite the corporate failure of the former Alcan’s investment in a smelter in Ningxia province (which has gone on to be one of China’s biggest and most profitable operations), one major multinational has reportedly signed an MOU with the Henan provincial government to build a smelter and rolling mill in that province.
The project will be powered by its Chinese joint venture partner, none other than Shenhua, one of the largest coal companies in China.
As if that is not enough, this MNC is also in talks with another provincial government, in this case Qinghai, for a second smelter. This one will be powered by that province’s extensive hydroelectric capability. This will be a fully integrated plant, according to our sources, with upstream and downstream capabilities, including another rolling mill.
I have it on good authority that in the case of the second smelter, it was the provincial government that approached the MNC, not the other way around. The provincial authorities are casting around the globe looking to attract the top 400 companies into their precinct.
We will keep listening for further developments on whether the two smelters go ahead. But we know that the MNC had a team here two weeks ago, in Qinghai.
There have been many stories in the world’s press about the current and future situation for China’s aluminium industry. Several agencies ran with a story from the CEO of the Sanmenxia smelter, quoting him as saying that China will limit aluminium capacity to 22 million tonnes by 2015.
Stories and press releases like that have led foreign-based analysts to conclude that China will become a net importer of primary aluminium by 2015. One well-known USA based analyst predicted 5 million tonnes, then upped his forecast to 7.5mt. He took these pronouncements and press releases literally.
We spoke to some industry insiders about these predictions. Their response was, it won’t happen. China will have more than 30 million tonnes capacity by 2015, according to our sources. (We have the precise list of smelters being built and being planned, but that information is too valuable to publish here.)
According to our sources, the industry is delighted that the world’s press publish stories about capacity limitations and import growth. Their view is that these things only help promote the metal price, which is why the industry is putting these stories out in the first place. So their message to the press agencies and international analysts is, “Keep it up - you are doing a great job on our behalf.” Whether they realize it or not.
Much has been made of the reductions in aluminium output caused by the drive to reduce energy intensity. Many (mostly foreign-based) analysts have taken the announcements literally, leading them to predict that China will become a much larger importer than it already is.
We at AZ China have been speaking to many of the local plants attempting to get to the truth of the matter. Whilst we found some smelters had indeed been affected, we also found several that had defied the government order. Even using the numbers we had obtained, it was clear that the reductions were not going to be as much as predicted. Some smelters refused to take our phone calls, so we were not able to check conclusively.
Now we know that at one smelter in particular, the reason why they refused to answer us. One very large smelter in China’s south told us at a conference yesterday that they were continuing to operate despite Beijing’s directive. This is the same smelter whose “closure” was written about in newspapers around the world, leading analysts to conclude that the energy restrictions were indeed severe.
The people from the smelter told us that their local government ordered them to remain open in spite of Beijing’s order, citing the loss of jobs and local tax revenue as being more important than the central government’s objectives.
It just goes to show that you cannot believe everything you read in Bloomberg and Reuters and other news agencies. All these agencies reported that the smelter had closed. Why did they all get it so wrong? Because this smelter is owned by Chalco, and it was Chalco that issued the press release. The agencies simply picked it up and ran with it. Perhaps they tried confirming the story by calling the plant, as we did. Perhaps they assumed that the phone not being answered means the plant really must be closed. Wrong. The plant just didn’t want too many people to know that they are still alive and well.
And we are not talking a small plant. This plant produces more than 400,000t per year.
Vietnam’s Prime Minister Nguyen Tan Dong told that country’s parliament that Vietnam’s reserves of bauxite may total 11 billion tonnes, according to Bloomberg.
That would put Vietnam on top of the totem pole, replacing Guinea (7.4bn tonnes) and Australia (6.2bn). Vietnam’s previously recorded reserves were reported to be 2.1 billion tonnes.
The International Aluminium Institute (IAI) has released the figures for China’s aluminium production in October. According to their figures, which they get from the China Nonferrous Industry Association (CNIA), October saw 1.291 million tonnes produced. This equates to a production rate of 41,650 tonnes per day, and means that year to date, China is at 13.6 million tonnes.
The IAI/CNIA figure is marginally higher than the one published by the National Bureau of Statistics (NBS). They reported 1.209 million tonnes for the month.
The real problem is however, that neither figure can be trusted. The NBS gets their figures out within 10 days of the end of the month, and aluminium is one of hundreds of production and consumption statistics that they publish. Knowing how things operate here, it is extremely hard to believe that they can capture, validate and cleanse all the data in the timeframe, month after month.
The CNIA on the other hand, has a much smaller portfolio of products and producers to canvass. But here, personalities and petty squabbles can get in the way. If you are lucky enough to get hold of the smelter-by-smelter CNIA data (they don’t release it any more, but copies surface from time to time), have a look for Weiqiao smelter on the list.
Weiqiao, based in Shandong province, has capacity of 250,000t, but does not appear in CNIA data anywhere or in any month. Weiqiao smelter was the scene of a bad accident in 2007, where molten metal made contact with liquid. 9 workers were killed and dozens injured. Since then, Weiqiao has not appeared in CNIA numbers. It produced 250,000t in 2009.
It wouldn’t be so bad if it was a once-off, but it isn’t. From our checks, there are several other smelters that don’t get reported, for various reasons.
It’s a precarious position, to be building forecasts and market anlyses based on unsound data. That’s why we always go back to the smelters themselves and check first-hand.
Unconfirmed reports suggest that Australia is the target for a new aluminium smelter.
We understand that Yankuang Aluminium, who are already in talks for a 1 million tonne alumina refinery (as we reported here in September) are also examining the idea of building a 500,000t smelter.
The proposed smelter would be situated in Western Australia, according to our sources, presumably close to the alumina refineries there.
No other information available, but my guess is that power could possibly come from the North West Shelf gas reserves. Although Australia is usually thought of as being too expensive for new aluminium smelters, that view changes when you are currently paying much more for your electricity, as Yankuang does. We estimate that their Shandong smelter is probably paying as much as $900 per tonne of aluminium produced.
Putting the smelter in Australia also reduces freight costs. Why ship the alumina to China, when it takes 1.92 tonnes of the white stuff to make 1 tonne of metal?
If this project goes ahead, it will increase the number and volume of Chinese smelting interests abroad. Chalco is already active in Saudi Arabia and is looking at Malaysia for a possible smelter.
If China does become a net importer of primary metal, who better to buy from than other Chinese.
It is all very topsy-turvy, with Chinese companies building plants overseas, and overseas companies looking to build plants here.
0