Monthly Archives: May 2014
According to market sources, Japan buyers are being asked to pay $405/t-410/t for the 3rd quarter premium, an increase of 9% from last quarter. To put it simply, increasing domestic demand and decreasing supply are driving premiums up.
Japan’s economic stimulus policies encouraged domestic construction and improved orders of vehicles and consumer goods, which led to increased demand of aluminium downstream products. But they heavily rely on aluminium imports to satisfy domestic aluminium consumption, with no primary aluminium capacity of their own.
Metal supply for Japan has been affected by the loss of the Ma’aden potline last year (though we understand Ma’aden is now back on song), and the sale of Japan’s share of the Inalum smelter has not helped. It has been generally recognised now that total free metal generated in ROW is now less than demand, and this imbalance is stating to manifest itself in supply to Japan.
In the next quarter, I believe Japan will have to pay a record high premium, as the market tightens further.
I was in Iran earlier this week, to attend the 3rd Iran International Aluminium Conference, in Tehran.
The event was put on by the Iran University of Science and Technology, in conjunction with the Iran Aluminium Research Centre. Delegates were mostly from within Iran, though there was a reasonable number of foreigners present - I would guess about 30 in a total of maybe 100 delegates. The conference organisers did a good job overall, though there were some snafus, with sessions starting up to 30 minutes late. The program was split into 3 streams, but some papers did not fit in the stream they were allocated to. For instance, Dr Mark Dorreen’s paper on a new cooling system for pot walls was in the raw materials session. Other papers on particular subjects were scheduled to clash with papers on related subjects, forcing delegates to choose which one to hear or miss.
Actually, the program itself said something about the state of the aluminium industry in Iran today. The majority of papers were related to downstream functions - surface treatment, the use of different alloys in automobile construction, extrusion technology, and so on. There were very few papers on the reduction process, carbon or raw materials. (The Raw Materials session had two papers on petcoke, and two papers not related to raw materials.)
One paper that was interesting to me was by Professor Margaret Hyland, of the Auckland University Light Metals Research Centre. Margaret explained that anode effect measurements were leaving some anode effects out of the calculations, and that there were two new classes of anode effects that often get missed. I am not qualified to explain these two new types of anode effect, but what it told me is that we need to be sure that we are chasing anode effects for the right reasons. If our goal is to achieve a certain maximum rate (0.1 pp/pd is an often-quoted target), then we won’t care about these types of effects that aren’t being captured now. But if our goal is to improve current efficiency and overall pot performance, and to generally strive towards excellence, then we will want to know how to measure these two new types of anode effects, so that we can eliminate them. Too often, the aim is to meet a target in its own right, and we forget that the target is only an indicator of an overall performance level.
I have just returned from Iran, where I attended the 3rd Iran International Aluminium Conference.
Iralco, the Iran Aluminium Company, gave an excellent paper to kick off the proceedings. Iralco has 70Ka and 200KA pots producing about 180,000t per year. Presently 100% of their production is exported, as a proxy for foreign currency for payment of the alumina consumed. As a result, the country also imports about 170,000t of raw metal for the downstream industry.
Iran sits well down the scale when it comes to aluminium consumption per person, with just 6kgs per head, compared to other countries where the rate may be as high as over 30kgs per capita. Some 25% of Iran’s aluminium consumption goes into transport, mainly automotive, while the building and construction sector takes 18%. 34% of the metal used in Iran is flat rolled product, while extrusions represent 24% by volume and castings and wire/rod make up the balance.
Iralco are looking to expand, and I understand from some discussions there that they are looking to work with China’s NFC to build a new potline. As part of the new line, Iralco will look to build their own anode plant.
Another aluminium company announced aggressive expansion plans during the conference, though their speaker let them down by presenting data which did not make sense. Kaveh Kuzehstan Aluminium, who call themselves Kalco, is proposing to build a new potline, also using the help of NFC. But the speaker told us that the world would be short aluminium in 2014 to the tune of 4.8 million tonnes, and would be short by 14.4 million tonnes by 2020. He also told us that the company would sell their metal to Turkey, India, Japan, Brazil and China. I wish them luck!
Jacynthe Cote, CEO of Rio Tinto Alcan, is leaving the company. According to the RTA press release, Ms Cote is leaving at the end of September to pursue other interests.
Clearly this was not new news, as Rio has already announced the appointment of a former BP executive to fill the role. There had been some speculation in industry circles about how much longer she would stay in the job, given the tough market conditions that have prevailed since she took over.
But such speculation was not based on any suggestion of poor performance. Jacynthe held a reputation within the industry of being an excellent CEO, and there’s no doubt she will be missed, both within RTA and in the wider industry.
Jacynthe joined the former Alcan in 1988, and rose to the top position in 2009 after Rio took over Alcan. it’s not widely known, but the present head of Rio, Sam Walsh, was Jacynthe’s mentor in her new job as RTA CEO.
But Jacynthe and Rio have been battling for more than 4 years with forces that are greater than them. The Global Economic Crisis sent metal prices crashing, and even to this day aluminium is still under-performing. RT and RTA looked at an expansion strategy at first, enunciating a plan to close old inefficient plants and build new low-cost capacity. There was talk of a smelter in Paraguay, and another in Malaysia. Soon enough however, both projects died, as the industry continued an over-supply scenario. Eventually, RT sought to spin off some assets, creating Pacific Aluminium, and it was Jacynthe’s job to sell this new company. But there were no buyers anywhere near RT’s asking price.
The one star in the RTA camp has been the AP60 plant in French Canada, which Jacynthe championed. It must have been a difficult sell job, to convince the RT Board to stump up the funds for this plant, even as the world shunned aluminium as a commodity.
it is fair to say that the job description and objectives that the new CEO has been given are probably quite different to the set of documents that Jacynthe was given in 2009.
We at AZ China wish her success in her future career.
There are only seven aluminum smelters located in Guizhou province at present. Two of those are state-owned enterprises and the rest are private. All run at relative small capacity, now they are facing different fates.
The Guizhou government issued a final closure plan for outdated capacities last week. Two smelters have to close by the end of this year, namely Guizhou Weiming Aluminium with capacity of 32ktpa and Guizhou Anshun Huangguoshu Aluminum with capacity of 45ktpa. The latter is running 85KA technology, which was outlawed some years ago. Almost at same time, Chalco Guizhou, Guizhou Zunyi Aluminum and Yulong smelters told the market, they will restart operations, with total capacity of 325ktpa coming back into the market.
There are several possible reasons to encourage restarting I think. The industrial electricity price in Guizhou province is relatively high compared with other regions, and energy supply is another limiting factor. We heard from the market, Guizhou government will give a tariff concession to the restarted smelters, some RMB0.13/Kwh, bringing the price to RMB0.45/Kwh roughly. In addition, the government has a capital of RMB80-120 million available for smelters’ restarting.
In order to overcome higher electricity price and short energy supply, the government is going to promote construction of captive power plants of domestic smelters in the future. I estimate the cost of electricity will reduce to about RMB0.3/Kwh if they run captive power plant but it depends on installed capacity and utilization rate.
Domestic alumina prices went down to a large extent in last couple of months due to holding higher inventories at producers. Two large components of operating costs have decreased as the market shifts to a bullish view, stimulating the smelters’ interest in restarting.
Editor’s note: plants running at 85KA have no place in the 21st century, and it’s about time someone in China forced these plants out. Paul Adkins.
Kazakhstan has only one aluminium smelter (KAS) which is owned by the Kazakhstan government and is located in Pavlodar. With annual production capacity of 250kt, KAS needs 125kt of anode theoretically. According to our database, they run at relative higher operating rate, over 95% in latest 3 years, therefore the consumption of anode was quite stable among these years. However, they sourced baked anode from China and Russia, which increased their production cost as well as the business risk of raw material supply.
Kazakhstan has delayed cokers with existing anode grade petroleum coke capacity of 370ktpa in total, which is able to satisfy carbon products’ consumption for domestic aluminium smelter. After 2 years construction, a captive anode plant was put on stream by 2013 end, with reported capacity of 150ktpa. Compared to their aluminium outputs in 2013 of 244kt, it is enough. At same time, UPNK-PV together with China NFC worked on a calcined coke project with capacity of 280ktpa in Pavlodar from the middle of 2013. It expected to start operation in the second half of 2014. They are steadily becoming self-reliant on carbon supply.
China as the principle supplier of anode and calcined coke to Kazakhstan reduced exports from the beginning of this year. During the first quarter, anode exports to Kazakhstan reduced more than a half compared with Q1 2013 to 29kt. Kazakhstan will import less and less anodes.
Although Kazakhstan has a plan to expand aluminium capacity with another 250ktpa, which may give China producers another opportunity to export, I don’t think it will happen in next few years.
(All information is available in our SPH Report for more detailed country analysis. )
Recently due to seasonal demand increasing, the SHFE aluminium price rebounded to a new positive level. But as a result, more and more smelters want to restart idled pots and catch the chance to reverse losses.
Referring to my last blog, restarts in the next two months will be over 1,200kt, nearly offsetting all the idled capacity of 1,445kt this year. The shadows of oversupply clouds are spreading again. Although China pledged that it would cut at least 420,000 tonnes of outdated aluminium production capacity this year as part of a program aimed at closing obsolete, inefficient and polluting industrial facilities, these restarts make that a hollow pledge. China’s total capacity now is 33Mt and operating capacity is 26Mt, not including the construction over 2Mt in 2014. It is obvious that eliminating capacity just have limited effect on the current market.
Conflict of interest.
Because of falling prices and heavy losses, several smelters decided to shut down to reduce the loss in maximum degree. But local governments are trying their best to keep local smelters operating though increased subsides, by reducing power price or cash subsidies, although the NDRC explicitly ordered the implementation of the new electricity charge, and warning that subsidies cannot be to substandard enterprises. The conflict interest between state and local government is the biggest resistance to the reduction of overcapacity.
As IAI figure showed, China’s April aluminium production was 1,895kt with daily production at 63,000t, decreasing 4% m/m. Based on AZ China statistics, the total capacity cuts were 1,445kt since the beginning of this year, involving 19 smelters. On the surface, the negative effect in China from overcapacity is weakening, but the market situation remain soft with passive emotion and continued financial pressure on individual smelters.
As of 23th May 2014, SHFE Spot Price was RMB13120/t, decreasing 2% compared with the previous month highest record, because the restocking before China dragon boat holiday drove the price jump. In overall, it looks like that China aluminium industry is stepping on the same place they had been.
But with the production reducing, all of us want to ask when will the price go up? In fact, if the closures continued to increase, the price may have a chance to rebound. But more smelters, especially in Guizhou province have a plan to restart in future months because of demand season (Table 1), so aluminium future price have a downward pressure in the long term and will lead the market be more caution.
|
Company name |
Province |
Restart Capacity(kt) |
Date |
|
Chalco Guizhou |
Guizhou |
175 |
May |
|
Zunyi Aluminium |
Guizhou |
120 |
June |
|
Yu Long |
Guizhou |
30 |
June |
|
Yunnan Aluminium |
Yunnan |
150 |
June |
|
Chalco Baotou |
Inner Mongolia |
150 |
May |
|
JinLian Aluminium |
Inner Mongolia |
150 |
June |
|
Dongxing |
Gansu |
450 |
June |
As the table show, the total capacity will restart reach 1,225kt, almost offsetting all the cut production. Obviously, we still face the problem of oversupply. In addition, China economic data is still not very strong, with parts weakness. So it will be difficult for aluminium prices to have any sort of generous rebound.
I am in Tehran, at the 3rd Iran International Aluminium Conference. Over the next couple of posts, I will bring you the latest news, opinions, plans and claims from the speakers and from around the delegates.
There are several things that immediately struck me about this conference:
- The conference has a strong downstream element, with several papers examining things like the latest in the treatment of alloys for PV cells, or how to improve the life of your extrusion press. Nevertheless, the papers that dealt with Iran’s aluminium industry, upstream dynamics, the growth of primary aluminium and issues relating to raw materials were worth listening to.
- There is a strong Chinese presence here, with NFC and NEUI having what looks to be at least a dozen people here. NFC is a diamond sponsor of the conference.
- The organisation of the conference could improve, but generally has been okay so far.
Probably the most important feature of the conference is the announcement and explanation of the new smelter for Southern Aluminium Company (SALCO). This smelter is planned to start in about 3 years time, with initial capacity starting at 300,000t, but eventually growing to 1 million tonnes. To be built by NFC using a NEUI 400KA design, the smelter will eventually use alumina refined at a new refinery in Iran, but using Guinean bauxite. The smelter will be in the south of the country, in Arak.
According to today’s presentation, the plant will have 258 pots in phase 1, each producing 3.2 tonnes per day. The design calls for anode consumption to be 410KG/T AL, and a DC rate of 13,000KWH. The adjacent power plant will be 1000MW, and will take 36 months to build.
The plant will nominally produce 144,000t of ingot, 70,000t of slab and 86,000t of billet, though one of the speakers told us that plans are already under way to convert some of this capacity to liquid metal transfers.
Another speaker told us of the whole-of-life calculations that went into the decision to locate the alumina refinery in Iran rather than in Guinea. Although Iran holds the lease for the bauxite, when taking into account capital costs, infrastructure development costs and operating costs, Iran came slightly ahead.
There were several other interesting papers, some of them for the wrong reasons, so I will post more soon.
Indian aluminium company Nalco (National Aluminium Company) is looking to expand outside India.
According to press reports inside India, Nalco’s Chairman and Managing Director Ansuman Das told employees at its annual meeting that Nalco had approached 6 countries with a view to examining the potential for an aluminium smelter Joint Venture. The 6 countries have been named as Indonesia, Vietnam, Malaysia, Qatar, Oman and Iran.
In my view, this is clearly a fishing exercise. Each country offers different opportunities but significant challenges - Indonesia has bauxite but would need a power station and infrastructure. Qatar and Oman offer capital and some gas leases, but would they have enough spare gas to divert to another aluminium smelter? And would Sohar or Qatalum welcome a competitor in their midst? Salaries at some Middle Eastern plants are very high due to the conditions, so another employer would compete with the incumbents for scarce technical specialists, and push salaries up further.
We are now in mid 2014, and if Nalco is only at the stage of performing a shotgun approach to half a dozen countries, then I feel comfortable in predicting that we won’t see an operating smelter emerge from these approaches any time this decade.
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