LONDON: China’s base metals producers are cranking up the volumes at the start of 2013, judging by the latest set of official output figures from the National Bureau of Statistics (NBS).
In the case of aluminum this is no more than a continuation of a long-running trend, although the scale of increase over the last couple of months will make worrying reading for a market that is already struggling with high legacy stocks and continued systemic over-production.
In the case of other metals, such as copper, there has been a marked acceleration in annualized run rates, while in zinc this year looks set to herald a complete change of trend.
NICKEL — A HEALTH WARNING
Now, it’s fair to say that the NBS metals production figures are not most analysts’ favorite data set.
This has nothing to do with the usual problems associated with the timing of the Lunar New Year holidays that make year-on-year comparisons difficult for any set of official Chinese figures.
The NBS publishes combined figures for January and February, which should, in theory at least, smooth out the peculiarities of the Chinese calendar.
It’s more a long history of inexplicable spikes in the data and a frustrating habit of making major revisions to historical data without letting anyone know.
A prime example in the latest figures is the sudden jump in Chinese nickel production, up 153.5 percent in February and up 165.8 percent over January and February combined.
Has production really increased by this much in the space of two months?
The figures suggest a year-on-year increase of around 360,000 tons annualized between December last year and the first two months of this year.
This stretches credibility if the figures have been collated on a like-for-like basis. More realistically, the NBS has changed its methodology.
But to include what precisely?
Tantalizingly, that implied annualized jump in nickel production looks quite close to what some analysts estimate to be the country’s output of nickel pig iron, a production stream that up to now has never been included in the official refined nickel output figures.
This is of course pure conjecture. We won’t know until some sort of context is prised out of the official statisticians.
But that health warning aside, most observers are happy to work with the underlying trend in the production figures as an indication of what is happening in China’s leviathan metals sector.
ALUMINUM
And in the case of aluminum, the trend is once again accelerating upward.
Combined production over January and February rose by 15 percent year-on-year to 3.51 million tons.
That’s the fastest pace of expansion since 2010. Moreover, February’s output of 22.55 million tons annualized was a fresh all-time record.
The official figures imply that national output rose by 2.34 million tons annualized over the first two months of this year.
That may be overstating the case somewhat, although the implied January run-rate was actually very close to the alternative figures from the China Nonferrous Metals Industry Association released by the International Aluminium Institute.
Moreover, analysts at consultancy AZ-China, which takes a ground-up view of the country’s smelter sector, are expecting 4.3 million tons of additional capacity this year, mostly from a new generation of smelters starting up in China’s northwestern provinces.
Set against that is the potential for the closure of older, higher-cost capacity in traditional aluminum production hubs elsewhere in the country, meaning a double dynamic in terms of actual run-rates this year.
Right now, though, it does seem as if Chinese production of the light metal has moved up several gears early this year.
COPPER
Higher production of refined copper is also widely expected this year, based on additional smelter-refinery capacity and accelerated imports of raw materials over the closing stages of 2012.
Imports of copper concentrates have boomed since August last year, reflecting better global availability as copper mine supply improves after many years of chronic under-performance.
China’s production of refined copper has accordingly increased at an accelerated pace over the same period.
Output was up 11.9 percent in the first two months of 2013, the fastest rate of increase since 2010.
February’s annualized run-rate was 6.30 million tons, not quite matching that in November and December. But those two months marked consecutive all-time records and, to put the latest figures into context, prior to the middle of last year national output had only exceeded 6.0 million tons in one single month, August 2011.
The trend appears to confirm a major shift in China’s draw on copper units from the rest of the world away from refined copper toward raw materials.
The country is still far from self-sufficient in terms of refined metal and Chinese imports are going to remain a feature of global trade flows, but not necessarily to the same extent as has historically been the case.
ZINC/LEAD
Changes in raw material dynamics may also be behind a change of trend in China’s production of refined zinc.
Chinese zinc producers last year cut production by 5.6 percent, an unprecedented development in a sector that had previously experienced only one-way growth.
Poor economics forced their hand, a combination of weak demand and prices, low by-product profitability and uneconomic treatment terms.
The combination reduced China’s call on zinc concentrates from the rest of the world. Last year’s imports of 1.94 million tons (bulk weight, not metal contained) marked a sharp reduction from flows of 2.94 million tons in 2011.
That in turn led to a build-up in concentrate stocks everywhere else, a key factor in the sharp 10-percent rise in this year’s term treatment charges to $ 210.50 per ton.
Although the Chinese zinc market exists in something of a parallel universe to the rest of the world, the shift in treatment charges in favor of smelters everywhere is expected to have a knock-on impact on Chinese producers.
Certainly, refined production in the first two months of this year showed a change of trend, rising by 1.7 percent relative to last year, the first sign of a return to growth momentum in the sector in over a year. The country’s production of refined lead, meanwhile, increased by 11.1 percent over January and February, a robust rate of growth relative to last year’s pace of 9.3 percent.
TIN
China’s refined tin production, on the other hand, appears to be defying the overall trend, output dropping by 1.6 percent over January and February relative to last year.
That does fit in with a broader trend of low to no growth last year, reflecting poor end-user demand and a tendency to import cheaper refined metal from the international market.
Imports of refined tin boomed by 32 percent to 31,300 tons in 2012 with no obvious slowdown in January’s flows of 2,500 tons.
But then, it’s a little difficult to draw too many hard conclusions, since last year’s production figures included one of those one-off spikes that bedevil this data set.
Output last November apparently rocketed by 177 percent year-on-year to a record 35,400 tons.
Except that it almost certainly didn’t.
And the NBS figure for calendar 2012 production, 148,000 tons, implied all sorts of revisions to the previous 12 months' data.
As ever, though, by how much and over what period precisely is anyone’s guess.
— Andy Home is a Reuters columnist. The opinions expressed are his own.
