Not three days ago did we report that China has “vowed to cut energy intensity, through a series of measures such as increasing power tariffs by 50-100% for some energy intensive sectors such as aluminum production as well as through task forces sent throughout the country to monitor compliance. We even reported several industry closures in Henan province. That earlier post discussed how Alcoa’s CEO Klaus Kleinfeld cited 6m tons of aluminum capacity within China was “below the waterline, so to speak and Chinese producers (primary producers) could not eek out a profit. But that was three days ago. And three day ago news in China is well, rather old (I hope you can see I’m being facetious). Check out these new numbers from Black China Blog (we have personally met the author and can vouch for his credibility): aluminum production hit 1.424 m tons or 47,500 tons per day according to data released by the CNIA (China Non-Ferrous Metals Industry Association). And guess what? This is a new all-time record!
So much for production cuts!
Nobody predicted a production increase. And as Paul Adkins, author of Black China Blog points out, it defies all logic. Logic being that most producers are underwater, that the government wants to limit energy intensity and that key end markets for aluminum have slowed down within China (e.g. property and infrastructure). So how should we interpret these numbers particularly when they appear to defy all logic?
Well, Adkins through his own research (calling into smelters) has discovered that smelters named on the government’s “black list for shutdown didn’t exactly do just that. (To be named on the blacklist, Adkins suggests that the smelters had to have amperage under 100kA). But what did the < 100kA enterprising smelters do? Oh silly goose, they ripped out the old technology and built new cells in their place, according to Adkins. The result? Increased production of course! Adkins goes on to say that several smelters scheduled to close merely closed the old lines and instead, have built replacement lines.
We verified aluminum production numbers for this post looking at data provided by the International Aluminum Institute (IAI) which shows the increase in global daily aluminum output (66,000 tons in June vs. 66,400 tons in May) and “Total primary aluminium production in China rose to 1.424 million tonnes in June from 1.418 million tonnes in May and 1.029 million tonnes in June last year, according to Reuters.
Certainly China’s aluminum sector is not as “controlled as everyone thinks it is. We have to hand it to the Chinese for their ingenuityÂ¦