The Chinese trade press has today reported that Do Fluoride, better known in the international market as DFD, has spent RMB73 million to take a 73% interest in Gansu Baiyin Fluoride company. This works out to about US$11.6 million.

On paper, this is a good move by DFD. It gives them a manufacturing presence close to the major development area in China. Gansu province, where Baiyin is located, is part of the great northwest expansion. Around 50% of China’s aluminium is produced there now, with that number growing to as much as 70% in the near future. AZ China estimates that more than 15 million tonnes of metal capacity will be located in that area within the next 4 years.

However, it is likely that DFD and the remaining shareholders will have to come up with some additional capital, if they are to make the most of their location. Baiyin is one of the oldest ALF3 kilns in China, and has only 15,000t capacity. As well, with DFD’s fame as a promoter of Anyhdrous ALF3, and with so much of the smelter capacity in that region being new, high-amps pots, no doubt DFD management will want to protect and maintain their product quality narrative.

From the local market perspective, it is likely to be good news. Compared to the huge metal capacity, there is only Baiyin and Ningxia King (90,000t) to supply ALF3 locally. Presently, DFD and Hunan Xiang Xiang are shipping material to the northwest, but that’s a long journey from Henan and Hunan provinces! Temporarily at least, no doubt DFD will use Baiyin as a distribution point, saving some transport costs and improving service times.

With Baiyin now “off the table”, one wonders how Hunan Xiang Xiang might respond to the growing market in the northwest. It appears DFD now have a superior position.

The Baiyin purchase is also an exercise in the old adage - “Buy in gloom, sell in boom”. Baiyin had been losing money most of this year due to soft demand and a lacklustre price. It’s a good time to buy assets, provided you are confident the market is going to turn around.