Monthly Archives: February 2014
As memories fade of the Winter Olympics, it’s clear that not all Russians were focused on the events at Sochi.
Russian Aluminium company UC Rusal has stuck an agreement with an energy company in Indonesia for a project that will see the Russian company build an alumina refinery in that country. The strategic alliance will also see Rusal undertake exploration for bauxite, with both activities happening in West Kalimantan on the island of Borneo. West Kalimantan sits to the north side of Indonesia and east of Malaysia, with the latter country sharing part of the island. It was also home to a few other bauxite plays, with Indonesian company PT Antam announcing an alumina refinery there last year. Abu Dhabi company Mubadala was reportedly building a plant there as well.
It’s an interesting strategic move by the Russians. The Chinese have been exporting bauxite from Indonesia for the last 4 years or so, but have been prevaricating on building processing capacity. Indonesia brought in a ban on exports of certain ores, including bauxite, with the intention of forcing the Chinese to invest in the country and keep some of the added value at home. But China has been in no rush to outlay capital, since China already has plenty of processing capacity. The last thing the Chinese need is more processing capacity sitting outside their own country and on top of their existing capacity.
But Russia has no such limitation. Rusal can make a nice strategic play here, and become a large scale supplier of alumina to the Chinese market, or to their own smelters in the eastern side of Russia. The project will cost about $6 billion, which is a big burden for a company with a lot of debt already, but it positions Rusal very nicely.
It will be interesting to see whether Rusal calls on the Chinese to supply the technology for the plant. China has in recent years become the world leader at alumina processing technology - hence why they have so much capacity at home - so it might make sense for Rusal to award a contract to a Chinese firm.
The Indonesians have also been talking of a smelter being built on the island, but this would require a much larger commitment from the government for power, roads, and other infrastructure on an island that is still a tropical wilderness.
A warning to Chinese aluminium producers - do not read the announcement from Alcoa this morning about electricity prices in three of their plants, unless you feel like a good cry.
The government of Quebec province in Canada has reached an agreement with Alcoa for electricity prices for the Baie-Comeau, Bécancour and Deschambault plants in that province. The new electricity rate moves from 2.8 cents per kilowatt hour to 3.4 cents. These rates are good to 2036 for Baie-Comeau and to 2030 for the other two plants.
In simple terms, that puts the Alcoa price at roughly one quarter of the price that smelters pay in the heartland of China’s aluminium industry - Henan province and its nearby powerhouse Shandong province. Even the behemoths being built in China’s northwestern provinces struggle to compete with that electricity price, and they have the additional burden of being thousands of kilometres from supply and end-use markets, something that Quebec does not suffer from.
In any case, even if they have better prices today, those smelters in China’s northwest will look at the locked in dates, 16 to 22 years hence, and also cry. Being fuelled by coal, those smelters will be victim to the rise and fall of coal prices. Admittedly, coal prices are softening, but that is not to take away the rent-seeking motives of the provincial governments in Xinjiang, Inner Mongolia and so on.
Thee is no chance that the provincial governments in China’s northwest will take a leaf from their counterparts in Quebec.
TMS is over for another year. As per usual, some people stayed for just a couple of days, others used the Wednesday for golf (M&M were seen with bags of clubs, but weren’t the only ones), while some stayed past the Thursday for a couple of days of R&R.
What to make of the narrative this year? If last year was tough, this year was grim. Aluminium companies had a tough year last year, and were in no mood to hear about price increases. Carbon companies were looking for new business opportunities, but these were almost non-existent. The announcement that Point Henry smelter will close cast a pall over whatever lighter mood there might otherwise have been.
One of the outcomes of a grim year was that numbers were down. The crowd at the BP party was down (based on an eyeball measure), while the Jacobs reception apparently did not crack 600 (though that event was by invitation only.) The Rain CII event seemed a little better attended than other years, though again that judgement is via eyeballing the crowd. But generally, it seemed that there were less people congregating in the lobbies of the TMS hotels.
Certainly there was no reduction in the number of meetings (we had a total of 47), but the big complaint from everybody was that the spread of hotels made things difficult. We had meetings at 6 different hotels, which meant that often we had to finish early in order to allow time for the walk to the next hotel. When you only have one hour per meeting, a reduction of 10-15 minutes is a big loss. Fortunately, we were able to meet most time schedules, though I admit I slept in and was late for one 7am meeting.
And so the juggernaut rolls on, landing again in Orlando Florida, March 15-19 2015. At least we won’t have the problem of so many hotels. Next year it will be a choice of the Swan or the Dolphin. Along with holidaying families and little kids running around in their bathers.
Alcoa today realised a statement announcing that the Point Henry smelter would close by the end of August.
It’s a sad day for the industry, for the folks affected and for the entire city of Geelong where the smelter is based. Not unexpected, and nobody at the plant would have been surprised by the announcement. The only question was, would they retain the cast house and keep the rolling mill alive. We now know the answer is no. The rolling mill would not have survived without cast metal, while the cast house could not survive on its own. There had been some talk about trucking liquid metal up from Portland, but this has not eventuated.
About 1000 people will lose their jobs, not to mention probably up to 10 times that many in support industries - everybody from the contract welding shop to the lunch wagon people.
Geelong has had more than its share of knocks over the years. The Pyramid Building Society Scandal, the loss of International Harvester, Ford, and countless other manufacturing plants in the area.
At a macro level, it had to happen. High production costs, a small local market, the exchange rate and the low metal price all have their share of responsibility. But with no work, much less no manufacturing jobs in the town, locals are going to feel this pain for years to come.
Full disclosure - your blogger spent 13 years at Point Henry, going straight from high school into the Personnel Department as a junior clerk. From there, I worked in the Safety Office, the Industrial Engineering office (building 814E) and the planning office. From there, I spent time running the cast house planning function, before moving to Operations as a foreman and supervisor. So I got to know almost every inch of the plant, from the alumina unloader to the extrusion plant. Alcoa paid to send me to university, which gave me the Bachelor’s degree that I could hang on the wall. I would not be doing what I do now if it had not been for that time in the plant at Point Henry.
The one unusual part of the announcement was that Alcoa has set aside $250 million for site remediation. From what I hear, pot line 1 is slowly sinking into the swamp on which the plant was built, so that’s probably why the budget is so darned big.
Congratulations to Koppers for an excellent event yesterday. The Koppers team, led by Markus Spiess, who in turn was led by his lovely wife, took us to the San Diego Wine and Culinary Centre.
There we discovered that in order to enjoy lunch, we first had to make it. The 30 or so of us were split into 5 teams, and each team was assigned a dish to prepare - an appetiser, a salad and a main course, which Americans call an Entree.
It was the full MasterChef treatment. We were given aprons and a recipe and full range of ingredients. We soon discovered we were also allowed to vary the recipe according to our own ideas.
Without trace of bias, I can report that Team 4’s Linguine and Chicken was an outstanding hit. Compared to team 5’s rendition of the same recipe, we on team 4 were unanimous that our chicken blew the competition away.
A big thanks to Markus and all the folks at Koppers. Ji Yuan and I had a great afternoon.
- Former Comalco, Rio Tinto, Rio Tinto Alcan and Pacific Aluminium raw materials guru Alan Hustwick has hung up his bagpipes. Alan retired at the end of last year.
- Alan’s departure saw the company take the chance to re-organise a little. As a result, Peter Rees, who had moved up to Brisbane from Tomago Aluminium, has accepted a redundancy package.
- Congratulations go to Greig Stevens, who steps into Alan’s job - except that it has been restructured and downsized a little. Greig tells me he has a team of 8 people.
- Guess who, Don’t tell department - Which senior manager of a major carbon company told his company that he was attending TMS - except that he went to Las Vegas instead?
- Spotted having dinner together last night were Mike Meyers and Stu Ehrenreich. Mike was previously working for DQ Carbon, but sources tell me there is a new arrangement forming.
- Dr Akram Madanat, previously with the Gasan calcining project, has severed all ties with that company, and is now working on some new projects related to the calcining industry.
- Zhou Yan, also previously with DQ Carbon, now has her own business in Shanghai, representing one of the cathode companies out of Shanxi.
It is becoming a bit of a tradition - a bunch of Aussies (and a couple who represented the multi-cultural dimension of Australian culture) got together tonight for a dinner. What better way to make up for being away from our loved ones for yesterday’s Valentine’s Day than to be among a bunch of Aussie blokes.
In keeping with the way that Aussie blokes look at things, the order of business was very clear. First up was the selection of which beer to drink, and Bruce G bravely volunteered to taste a fight of 5-6 beers to see which would be the best.
We then moved on to the next topic - the likelihood of Pt Henry surviving the current review of operations being run by the folks in New York and Melbourne. As always when a bunch of Aussie blokes gets together, Bruce P suggested that we run a pool on the outcome. For the sakes of those whose jobs are on the line there at Pt Henry, I won’t go any further with this, and all of us wished those colleagues there best of luck for the future. (For the record, not all of us thought the plant would close.)
Bruce W then regaled us with stories of his son’s exploits in Hollywood, while Bruce B at the other end of the table had the sad news of telling us that he would not be able to attend TMS next year, as the dates conflict with Duck Hunting season in his little pond. Bruce T promised to support Australia in the next world cup, and Bruce S thought that San Diego winters were pretty good.
Meanwhile, Bruce G who had volunteered to taste test the flight of beers shared some stories of his visits to China, while Bruce P who was sitting beside him could only nod his head in agreement - or was he falling asleep?
All in all, a great evening, though we did miss Bruce C, who when he attends the Aussie dinners often puts his hand up to pay for the entire dinner. Come back Bruce, is all we could say.
(In case you are wondering, all men in Australia are named Bruce.)
Congratulations to the Jacobs Consulting group. The reports from around the lobby of the Westin Hotel, where Jacobs held their coke conference, were that this year’s conference was one of the better ones.
That’s no mean feat, given that at least one speaker cancelled at the last minute. This year’s TMS will be missing Mohan Handalkar from Goa Carbon, who had to cancel at the last minute.
Others commented that it was a little strange that Bai Info, the notorious Chinese information supplier, were see handing out flyers for their conference, right out the front of the Jacobs conference. It’s unknown if Bai Info had permission from Jacobs to do so, but some delegates were a little bemused by the antics. Anyone who knows Bai Info knows however, how low they are capable of sinking.
It’s that time of the year again. TMS is back, this year in San Diego, as it was in 2011.
The official TMS period does not start until Sunday, but no doubt some people were here days earlier than that. It has been a tradition that some companies use TMS week as a chance to bring the team together in the week prior. Others may have come early to attend the annual Jacobs Coke conference, held Friday and Saturday.
In reality, the first informal meetings take place at airports. On our way through San Francisco airport this morning, we bumped into a couple of Chinese attendees, including Tian from Sinoway. Michael Reynolds said hello, describing to us the challenges of flying through New York in one of the worst winters in recent times. Seems his journey will be even longer than ours.
We will bring more stories and photos from around the event. Stay tuned.
Rain CII CEO Gerald Sweeney knows a thing or two about the calcined coke market.
Since the merger of Rain and CII about 7 years ago, Gerry has been steering the Rain CII ship through the highs and lows of the market, with great success. This week I was able to catch up with Gerry via phone, and asked him to share with us some of his wisdom. (The answers I show in these questions are from my notes, and are not direct quotes.)
What was 2013 like for Rain CII?
Last year was a down year for Rain CII, with lower volumes and lower margins compared to 2012. However, this was not unexpected, with the global aluminium price being so low and with smelter closures around the world. Operationally, the company performed well, and was operating at the mid to upper 80% utilisation rate. There were some birthing pains at the Lake Charles Co-Gen project, but again, this was not unexpected.
The major challenges facing the company in the coming year or two?
We can’t control the aluminium price, so all we can do is manage our own business really well. We will keep pushing on product specifications, keep cooperating with aluminium plants that allow us to use more marginal cokes. We have a great opportunity with our new asset in Rutgers, as they have a full lab facility for testing anodes using various grades of coke. Meantime, our shot coke technology is doing well, and we have more developments to come.
On the subject of Rutgers, many people ask if it will one day lead to Rain CII becoming an anode producer?
There is no way we would launch into an anode production facility unless it was with a smelter partner. I find it interesting how little the industry knows about what is still achievable with cokes that are available today. There is still a lot of low-sulphur, low-metals coke that is not going into calcining, but those cokes need a price environment that allows the industry to secure the coke on a sustained basis. Alternatively, there are cokes which some people refer to as non-traditional cokes, but first the industry needs to understand that these cokes can be used successfully. Over the longer term, properties have shifted out, but we need to keep making the case that there is still some room to move.
When it comes down to the bottom line, the industry has two choices - either the CPC price rises to allow calciners more flexibility to use low sulphur, low metal cokes, or the industry unlocks the coke specifications.
What’s your take on the Chinese calcining industry? We have seen some new capacity enter the market, but other projects have died on the vine.
Most of the new plants that have entered the China market are small scale plants serving the local market. So far, there has only been a small number of larger Chinese players in the international arena. But they will always face some fundamental problems. Shaft coke cannot be used on its own. It must be blended. But for as long as their green coke suppliers manage the calciners’ margins, they will be in a squeeze. The big refiners in China see the CPC price and want bigger and bigger slices. China will always be an important factor in meeting future demand, but its own aluminium industry could end up being the biggest determinant.
China’s anode exports rose by more than 20% last year. Do you see any threat that the world’s aluminium smelters could switch to an anode purchasing strategy?
That was an idea that was floating around a few years ago, when smelters were looking at ways of reducing costs. But I don’t think it has any attraction to them right now. If there was any interest, we would be seeing a long development time, but the logistics and strategic limitations of the idea make it unlikely.
Rain is listed in the Indian stock market. Is there any likelihood that we will see listings on other bourses?
It might happen in the distant future, but right now with the equities markets so down, there is no point. Certainly the Rutgers purchase gives us a diversification that makes us more attractive. Although CTP represents 50% of the output, from a revenue point of view the split is more like 30%/70% to Chemicals, so Rutgers gives us diversity in our revenue streams as well as products.
What’s your outlook for the coming year or two?
As the aluminium industry goes, so we go. It’s unlikely the metal price will rise by all that much, so the environment in which we operate will largely be unchanged. We will keep on with pushing the specs argument, managing costs and meeting our customers’ needs.
What’s the status on your project to build a calciner in India?
A decision to proceed will be made during the second quarter 2014.
Will we see you at TMS this year?
No. Unfortunately I can’t make it this year, but Rain CII will have a team there. We will have a team at the AZ China conference as well, so we are looking forward to that.
Many thanks to Gerry for giving me the time to interview him.
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