The market and China’s role - The Aluminum Association Gen Ses 2 Paul Williams... · The market and China’s role Aluminum Association Annual Meeting 20th-21st October, 2015 Paul

The market and China’s role

Aluminum Association Annual Meeting

20th-21st October, 2015

Paul Williams

Head of Aluminium, CRU Analysis

Structure of presentation

China’s downstream sector

3

4

5

1 Global demand outlook

2 China – growth and policy developments

Implications & conclusions

China’s primary smelting sector

2

• The good…

oGlobal demand remains

positive, especially in

transport

• …the bad…

oChinese demand growth

slowing, BRICs disappoint

• …and the downright ugly

oChina overcapacity in

upstream and downstream

The aluminium market and China

3

Source : CRU

Semis consumption to see solid growth globally

4.3

%

1%

8%

2%

1%

<0

%

CAGR 2014-2019% 8%+

6 - 8%

4 - 6%

2 - 4%

0 - 2%

< 0%

2014 = 76.6 million tonnes

2019 = 94.5 million tonnes

+5.9% CAGR growth

5% 5%

8% 4%

N. America,

transport demand

boosts growth

Europe, weakness

in building and

construction and

Russia limit growth

China, remains the largest

growth in volume terms but

growth slows significantly

4

Source : Aluminium Market Outlook, September update, 2015



3

4

5





5

Primary

• China has high cost power – it will become a big importer of primary

• WRONG. China has built a surplus of primary capacity and continues to invest. Power costs have fallen on weaker thermal coal and power market reforms

Alumina

• China has poor bauxite and high cost refineries, it will need to import growing quantities of alumina

• WRONG. China built massive alumina capacity based on local and imported bauxite

Bauxite

• China has limited bauxite reserves of declining quality, imports must rise

• RIGHT (We expect)

Semis

• China will only export low value products

• WRONG IN LONG TERM. China is fast improving quality and will penetrate higher value markets such as can stock

China – A decade of misconceptions

6

Source : CRU

China is suffering from a cyclical downturn whilst managing

structural change

-20 -10 0 10 20 30 40 50

Movie box office*

Online retail sales*

Postal revenues*

Insurance premia*

Govt. health and education spend.*

Renewables & nuclear power gen

Air passenger numbers

Inbound tourist revenues*

Power consumption

Thermal power generation

Car sales (CPCA)

Car production (CAAM)

Real estate sales (floor area)

Real estate starts (floor area)

Rail freight tonnage

Divergence of growth rates

Year-to-date change, %

Note: * deflated with CPIData: CEIC, CPCA, CRU

High profile

indicators

Low profile

indicators

End-use sector

inventory adjustment

is weighing on

metals demand

7

Source : CRU

Chinese government policy has made “Value-added

products” the main focus The Chinese government wants to deter exports of ‘pure energy’ in the form of primary aluminium

but is it going to enforce it?

Domestic

expansion

Overseas

Projects

Import Export

Mining

Refining

Smelting

Rolling and

Extruding

Recycling

?

Looking to halt new

capacity but with

little success

8

Source : CRU

VAT rebates favour downstream products – but recent tax

changes on alloyed primary suggest new direction Primary Al

Export VAT rebate

decreased from 15% to 8%

Primary Al

Removed 8%

export VAT rebate and imposed 5%

export duty

Al Alloys

Export VAT rebate of 5%

removed

Extrusions, Castings and

FRPs

Export VAT reduced from 13%

to 8% or 11%

Primary Al

Export duty increased from

5% to 15%

Extrusions and castings

Export VAT rebate removed (11% and 8%)

Bars, Rods and Profiles

15% export duty imposed

Al Alloys

15% export duty imposed

Plate, Sheet, Strip (Alloyed

and unalloyed)

Export VAT increased to 13%

Foil

Export VAT rebate increased

to 15%

1st Jan

2005

1st Jul

2007 15th Sep

2006

20th Aug

2008

1st

Dec

2008

1st Jun

2009

1st

May

2015

1st

Aug

2008

1st

Nov

2006

1st

Jul

2006

1st

Jan

2004

Al Alloys & rod and bar

Export duty removed

9

Source : CRU



3

4

5


2 China – growth and policy

developments


China’s primary smelting

sector

10

Xinjiang

Inner Mongolia

Shandong

Regions of low cost greenfield

capacity growth

China production still increasing due to a small group of

large scale (low cost) expansions

0 2000 4000 6000 8000 10000

Hongqiao/Weiqiao

Xinjiang Qiya

Xinjiang Shenhuo

Xinjiang Xinfa

Tianshan

Easthope

Jiarun

Jinlian

2015 2016 2019Production '000t

8 projects dominate Chinese production growth

24000

26000

28000

30000

32000

34000

Jan-14 Jul-14 Jan-15 Jul-15

China World ex. China

China production marches on

Projects in

Xinjiang, Inner

Mongolia and

Shandong drive

growth

11


0

500

1000

1500

2000

2500

0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 24000 26000 28000 30000

China Cash Costs show swathe of capacity losing money –

another 4.1 Mtpy of capacity expected to shut 2015-2017 Cash Cost ($/t)

Cumulative production (‘000 tonnes)

SHFE Cash: $1,820/t

(11,500 yuan/t)

• At SHFE cash price of $1820/t - RMB11,500/t – nearly 40% of capacity with costs above price

• Costs have fallen significantly through fall in coal prices, power market reforms, lowering power costs.

Also decline in raw material inputs such as alumina. These declines have not been enough to cover for

decline in price

• Companies are supported by provinces to remain open to provide employment and maintain provincial

GDP growth

• However, new capacity in Xinjiang, Inner Mongolia, Shandong with captive coal and power are low cost

and are located in the lower half of the cost curve. These producers are still expanding capacity

12

Source : Aluminium Costs, 2015

• Blue shading – indicates new

low cost smelters in Xinjiang

0

10

20

30

40

50

60

70

80

90

100

0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 24000 26000 28000Cumulative Production (‘000 tonnes)

$/MWh

Over 76% of Chinese production was wholly dependent on

coal-fired electricity in 2014 An additional 11% of Chinese production is partially dependent on coal-fired power making 87% of total

production dependent on coal

13

Source : Aluminium Costs, 2015

Aluminium fundamentals continue to soften in China –

and stocks will rise further in 2016, even with closures

‘000t

0

5000

10000

15000

20000

25000

30000

35000

2012 2013 2014 2015 2016

Production Consumption

0

1000

2000

3000

4000

5000

6000

7000

2012 2013 2014 2015 2016

Total stocks

‘000t

Stocks include reported inventory at SHFE warehouses, state

stockpiles and unreported stock

14


-600

-400

-200

0

200

400

600

800

1000

2010 2011 2012 2013 2014 2015 2016

Primary in extrusion form Primary in CC re-roll form Ingot Billet

net exports 000s tonnes

Primary metal will continue to come out of China in one

form or the other • Likelihood of billet

exports, especially if VAT

rebates are added to

7604 codes

15




3

4

5





16

Top 15 Chinese aluminium rolling mills Henan and Shandong are the largest producing regions

8. Zhenjiang Dingsheng, 350k

1. Nanshan Aluminum, 700k

2. Shandong Weiqiao, 533k

3. Henan Mingtai, 450k

7. Luoyang Longding,350k

9. Gongyi Wanda, 300k

10. Henan Xintai, 300k

11. Luoyang Al, 200k

14. Luoyang Wanji, 200k

15. Henan Xichuan, 200k

5. Chinalco Ruimin, 400k

11. NELA, 270k

12. Alcoa Bohai, 220k

4. Chinalco SWA, 400k

6. Asia Aluminum, 400k

17

Source : Aluminium Rolled Products Market Outlook, August 2015

China will be a major can stock player Chinese total can stock capacity to exceed 1.9m tpy by 2019, from around 550,000 tpy in 2011

Weiqiao

Nanshan

Asia Al.

Existing capacity

Planned capacity

Alcoa Bohai

Zhongfu

Chinalco Ruimin

Southwest Al.

Tianjin

Zhongwang

Capacity currently

shuttered

Source : Aluminium Can Stock and Auto Body Sheet Market Outlook, 2015 18

Exports of aluminium from China in various forms

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Rolled products Extrusion and other Fabricated products Foil Other selected final goods

China’s net export position, ('000t)

Other selected final goods includes wheels, air conditioners etc.

19




3

4

5





20

Main points

Chinese demand is slowing but capacity is still rising – China is looking to export its growing surplus

We expect fake primary to continue to exit and more billet to emerge

Semis exports will grow, especially in rolled products

Still a risk of other tax changes to promote primary metal exports – the weaker the economy gets the greater the risk

21

Source : CRU

Game changers – what could see flow of Chinese exports

stop?

Escalating debt sees significantly higher closures and halt to new capacity

Environmental clampdown – on alumina red mud, CO2 emissions carbon trading schemes and burning of high sulphur cokes could see significant reduction in primary output

More trade restrictions – more anti-dumping suits – particularly on fake semis and on specific semis

22

Source : CRU

Game changers – what could see flow of Chinese exports

stop?

Escalating debt sees significantly higher closures and halt to new capacity

Environmental clampdown – on alumina red mud, CO2 emissions carbon trading schemes and burning of high sulphur cokes could see significant reduction in primary output

More trade restrictions – more anti-dumping suits – particularly on fake semis and on specific semis

Probability: low-medium risk,

but increasing

Probability: low.. for now

Probability: increasing

23

Source : CRU

For more information

about CRU products and

services…

Contact Kathy Wright

[email protected]

Or visit www.crugroup.com

mailto:[email protected]

Documents

The market and China’s role - The Aluminum Association Gen Ses 2 Paul Williams... · The market and China’s role Aluminum Association Annual Meeting 20th-21st October, 2015 Paul