The following article is courtesy of Reuters. As we have stated many times, the situation in China in regards to the global economic crisis is somewhat different to the rest of the world. The Chinese Government is better placed than probably any other government in the world to take action and to steer the ship of state into calmer waters and back onto the planned course. The data referred to in the article does not on its own signal that the economy is improving, but the first signs may be emerging that the we have passed the worst. I will be discussing this briiefly in my paper at TMS in San Francisco in two weeks time.

Chinese economy shows signs of life

The following article appeared in the China Daily recently.

(Xinhua)

Aluminum Corp of China Ltd (Chalco), the country’s largest producer of the metal, said Friday its 2008 unaudited net profit may fall more than 50 percent from a year earlier.

The profit slump reflected large increases in raw materials costs in the first three quarters and plant closures caused by a power supply shortage last winter and summer according to a statement submitted to the Shanghai Stock Exchange.

This slump also came after products prices fall sharply as the economic slowdown cut demand, prompting Chalco to idle 4.11 million tons production capacity of alumina and 720,000 tons capacity of electrolytic aluminium since mid-October.

The company said the forecast was based on preliminary estimates under Chinese accounting standards.

Chalco didn’t give a net profit figure for 2008, but its net profit for 2007 was 10.24 billion yuan ($1.50 billion), or 0.82 yuan per share.

This news item has flashed around the aluminium world this morning. Here’s the official announcement from the Rio Tinto web site.

02 February 2009

Rio Tinto response to press speculation

Rio Tinto notes the recent press speculation regarding discussions with Chinalco, an existing shareholder.

As previously announced, the Boards of Rio Tinto are continuing to consider a range of options. In this regard, Rio Tinto confirms that it has held discussions with Chinalco regarding Chinalco acquiring minority interests in various operating businesses of the Rio Tinto group and also investing in convertible instruments.

There can be no certainty that a transaction will ultimately take place and any possible transaction would be conditional upon approval by the shareholders of Rio Tinto and all necessary government and regulatory authorities.

A further announcement will be made as and when appropriate.

China’s National Bureau of Statistics this morning released the figures for Q4 and the full 2008 year.

The world’s press will surely report this in full, but here is the view from within China, as given by the China Daily.

China’s economy is sending out mixed signals, a raft of figures showed on Thursday, with growth decelerating for the sixth straight quarter to the lowest level in years and the specter of deflation rising，while some indicators showing signs of recovery.

The latest economic snapshot highlights the challenges facing the government, which is under mounting pressure to come up with more stimulus measures on top of a US$586 billion package, and makes it less likely that China can offer significant financial support elsewhere in the world.

The country’s gross domestic product (GDP), the most widely watched measure of its economic strength, grew 6.8 percent from a year earlier in the fourth quarter of 2008, said Ma Jiantang, Commissioner of the National Bureau of Statistics (NBS) on Thursday at a press conference in Beijing.

That marked the slowest pace since 2002, as well as a sharp turn for the worse from a growth of 9 percent in the previous three months.

For the whole of 2008, the economy expanded 9 percent to 30.067 trillion yuan, according to Ma, the first year of single-digit growth since 2003 and well below the average rate of 9.8 percent in the past 30 years.

The latest reading on all domestic finished products and services consolidated China’s position as the world’s third-largest economy after the United States and Japan. The NBS last week revised the country’s growth in 2007 to 13 percent from the original estimate of 11.9 percent, putting its GDP at $3.38 trillion against Germany’s $3.32 trillion.

Germany’s GDP increased 1 percent last year, according to earlier reports, citing Germany’s federal statistics office. Europe’s largest economy could have shrunk as much as 2 percent in the final quarter of 2008, the office estimated.

While developed countries may be looking at China’s growth with envy, the Chinese government is feeling the heat from the current economic slump. Conventional wisdom has it that China has to keep its expansion rate above 8 percent to have its workforce employed.

As a result, China may have to create 14 million new jobs in 2009, estimated Long Guoqiang of the State Council Research Center, citing the fact that around 6 million college graduates will enter the workforce this summer and millions of rural youth come of working age.

That represents a huge challenge for the government, who fears that the worst has yet to come for the country’s economy. This year will be the toughest year since 2000, Premier Wen Jiabao said Monday at a State Council meeting.

Several key indicators of the country’s economic performance in December 2008 justified Wen’s concerns. China’s industrial output grew 5.9 percent in that period, well below the average of 16.18 percent in the first half of 2008, albeit a slight rebound from 5.4 percent in the previous month.

Recently I posted an article relating to the announcement about Alcoa signing a letter of intent with Weifang Lianxing Carbon. In that post, I mentioned that Alcoa would take control of the sales or Lianxing’s coke, including coke from future expansions.

Alcoa has contacted me and advised that the correct wording is that “Alcoa will deploy Lianxing calcined coke into selected smelters across its global smelting system.”

Elsewhere the announcement says, “The proposed joint investment covers:
o Lianxing’s existing annual calcined coke production capacity of 300,000 metric tonnes
o an approved 2009 expansion of 200,000 metric tonnes
o and participation in Lianxing’s future capacity expansion potential “.

I stand corrected.

Alumina
The quoted price of imported product didn`t change last week. Domestic alumina prices rose RMB50/Tonne to RMB1850-1900/Tonne(Non Chalco); the Chalco price remained stable, 2000RMB/Tonne.

Due to smelter cutbacks continuing, over-supply in the international market is driving the price down. Australian FOB spot price went below US$200/Tonne, Chinese domestic alumina dealing price were around RMB1800/Tonne. In China more than 7 million capacity have been cut. Further cutback and price decreases are expected.

Aluminium
Due to the substantial production cuts and government purchasing and storage plans, the aluminium market turned for the better for the last two weeks. Last week Chalco aluminium prices rose RMB100/Tonne to RMB12500-12600/Tonne. The non-Chalco price was around RMB12200/Tonne last week.

To the end of November, domestic primary aluminium production is 12.18 million tonnes. If we count China`s total domestic primary aluminium capacity as 18 million tonnes then utilization is running at only 75%.

Green Coke
Low sulphur coke prices rose again last week as a result of tight supply. Daqing and Fushun Petrochemicals increased their coke price of RMB100/tonne. Other plants kept the list price unchanged. The price of high sulphur coke went up a little too, due to increased price of coal. However, the price of moderate sulphur coke dropped and the demand from downstream production has not recovered yet.

Calcined Coke
Calcined coke prices didn`t change last week. Low sulphur calcined coke remained RMB1800-1900/Tonne, moderate sulphur calcined coke was still RMB1400-1600/Tonne, high sulphur calcined coke price has remained RMB1150-1250/Tonne.

Anode
Last week anode prices remained RMB RMB2500-2800/Tonne. The quoted price in Shanxi province was RMB2700-2800/Tonne; RMB2300-2400/Tonne in Shandong area; in Henan area. High-end product price was RMB2600-2700/Tonne, low end product price was RMB2300/Tonne. The actual deal prices were much lower than quoted price in all areas.

Coal tar
Due to the downstream production cutbacks or stoppages, coal tar price started to fall last week. Two plants in Shandong province stopped operating last week. Coal tar prices in Shandong have fallen RMB50/Tonne to around RMB1400/Tonne; Jiangsu prices have fallen RMB 150/Tonne to RMB1400-1500/Tonne; Hunan price dropped RMB150-200/Tonne to RMB1500-1600/Tonne.

The Taiyuan steel auction took place last Friday. There, coal tar was sold at RMB1530/Tonne. This price is RMB100/Tonne cheaper than previous month.

Chinese spring festival is coming very soon. For this reason most coal tar suppliers are trying to sell as much as they can in order to not have a high inventory level.

Coal tar pitch
The main price of Coal tar pitch didn`t change that much last week even though coal tar price started to fall, because other downstream products of coal tar are much more difficult to sell compared with coal tar pitch. Modified pitch prices dropped RMB200/Tonne to RMB1800-2000/Tonne; moderate temperature pitch price has fallen RMB100-200/Tonne to RMB1600-1800/Tonne.

More coal tar pitch producers stopped for maintenance last week.

Paul Adkins, Managing Director of AZ China and publisher of the Black China Report and this blog, will be giving a paper at next month’s TMS conference. The paper will examine the changing situation in China’s coke and anode industry, and will give an insight into the aluminium industry in China. Data on Chinese smelters which is not generally available outside China, such as net carbon consumption, power consumption per tonne of aluminium and power costs, will be presented.

Readers are welcome to come to hear the paper and to say hello afterwards. Alternatively, a private meeting to discuss the market in more detail can also be arranged. Contact Paul at paul.adkins@az-china.com.

The January edition of the Black China report is now available.

This month, we report on the apparent bottoming of coke prices and the fall in prices for aluminium fluoride and pitch. We look at the aluminium industry in China and give a longer-term view. The drop in exports for low sulphur green coke makes for interesting comparison with the rise in high sulphur coke exports. We also look at calcined coke, anodes and cathodes.

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