Differing Statements By Hongqiao Regarding Damage, Closures After Typhoon Lekima Cause Concern

Differing Statements By Hongqiao Regarding Damage, Closures After Typhoon Lekima Cause Concern

The world’s premier aluminium producer left the market in a state of confusion earlier this month after the firm released seemingly contradictory statements regarding the state of its facilities in the wake of Typhoon Lekima.

Within hours of the passage of the Category 4-equivalent super typhoon, the Hongqiao affiliate Weiqiao Pioneering’s official social media account reported that its aluminium plant suffered damage when a wall on the east side of the plant was “immediately overwhelmed” by flood waters from the nearby Xiaofu River. Weiqiao Pioneering described the water rushing into the plant as being “like a wild horse” and inundating the plant with up to two meters of water. Separately, Weiqiao reported that the storm caused a subsidiary operation to cease production in an effort at protecting its smelting operations.

However, only hours after its announcement of closures, Hongqiao reached out to Reuters with an apparently contradictory statement, saying that the company’s facilities weathered the storm without damage.

“The facilities are not damaged by the typhoon,” said a company spokesperson to Reuters via email. “There was flooding outside the factories but no actual facilities damage. Since Hongqiao is a big company and with numerous pre-emptive measures and plans, the company’s operation was not affected,” the email explained.

Hongqiao’s latest report seem to paint yet another story of its post-Lekima condition. Last Friday the firm filed a notice with the Hong Kong Stock Exchange, advising the market that early estimates of flooding damage have the company losing almost 5 percent of its total aluminium smelting capacity. Though acknowledging that further assessments must be made, Hongqiao stated in the filing that the year’s all-in production volume will drop by between 200 thousand and 300 thousand metric tons due to damage to production workshops by the typhoon. Aside from that damage, Hongqiao said the company’s operations continue to function as usual.

While an official acknowledgement of the outage is a promising step in the right direction, sources close to the company tell a significantly different story. In a note published shortly after the fact, AZ China quoted sources as informing them that the actual outage in Shandong was in the neighborhood of 700 thousand metric tons per annum, with an estimated time for return to full capacity being beyond that indicated by official communications. AZ China said its own investigations placed the outage as being “somewhat smaller” than the source conveyed to them, and that the pots are idle but at full heat. Such a situation would make a restart possible in much shorter order.

Adding to the uncertainty is a report published earlier this month by Wood Mackenzie. Citing unnamed market participants, the consulting firm placed Weiqiao’s outage at closer to 1 million metric tons per annum, consisting of 600 thousand metric tons per annum of damaged capacity and an additional 400 thousand metric tons per annum that was idled out of an abundance of caution. Wood Mackenzie expects repairs of the damaged capacity to take more than three months. As repairs are likely to run into the winter heating season and its state-mandated capacity cuts, the consultancy does not expect to see the damaged line return to production by year’s end.

With rumored capacity numbers wildly divergent from Hongqiao’s officially announced capacity loss, market watchers are more than likely to cast a skeptical eye at numbers released by the firm due to its difficulty in the recent past with releasing consistent information. In 2017 the firm came under fire from regulators for failing to release its annual report by the deadline required by the Hong Kong Stock Exchange. Ultimately the firm required two extensions and work from three auditing firms to complete the report, but not before trading in the company’s stock was suspended by the market and its corporate credit rating dropped.