BLACK CHINA BLOG

29
November

Bauxite and alumina markets post-Gove

By: Paul Adkins | Comments: | Category: Bauxite and Alumina

With yesterday’s announcement that the Gove alumina refinery is to close within the next few months, the regional bauxite and alumina markets are set for a bumpy ride. But let’s look at the fundamentals.

Gove contributed around 3 million tonnes of alumina, the equivalent of about 1.5 million tonnes of metal.   Its markets are/were China, India and the Middle East, with a combined capacity of more than 30 million tonnes.   So Gove supplied about 5% of the regional market.

Gove won’t disappear overnight. The reason why it will take 3 months or so to complete the closedown will be to honour existing sales contracts, as I understand Gove was fully sold through to the end of March.   So it will be an orderly exit, and customers will have time, if they haven’t already, to shop around for other sources.

In its place, Rio Tinto will put the equivalent amount of bauxite into the market. As well, there is some expectation that RT will expand the bauxite mining to create a few extra jobs. So at least 8 million tonnes of bauxite, possibly as much as 10 million tonnes.

That is music to Chinese and Indian ears.   Both countries have alumina refining capacity that could use that bauxite.   China in particular will be keen to get hold of the extra bauxite, in light of the uncertainty surrounding its other sources.   Indonesia is about to roll out its new export tariff regime, and West Africa is always going to be difficult for China.

The total equation of raw material supply into the primary aluminium market does not change because of Gove closing.  Just the nature and point of processing shifts, from the Northern Territory in Australia to refineries in Shandong and elsewhere.

The reality is, China only imports alumina when it can’t source sufficient bauxite.   A look at the two sets of import statistics will confirm this.

The winners out of this will clearly be RT, for a start.   They go from losing millions per month in Gove, to making money on bauxite.   And although additional bauxite entering the market should cause prices for the red dirt to soften, this bauxite enters the market just as the new Indonesia export tariff and quota system starts to bite.   If Indonesia goes ahead to reduce bauxite exports, and increases the export tax, it pushes the fixed cost of bauxite up.   RT will seek to equalise the price of their bauxite to that of the fixed minimum price coming out of Indonesia.   Win-win for RT.

Perhaps the market will whipsaw as players adjust to the new reality.   But the fundamentals do not support anything other than a shift in bauxite prices to reflect the situation in Indonesia, not the situation in the Northern Territory.

 

 

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