Category Archives: Bauxite
China’s import figures for bauxite and alumina illustrate one point about these markets that most commentators failed to notice or understand. In a dynamic and evolving industry, there’s not enough time to develop new supply sources.
China’s imports of bauxite so far this year are well down on 2013, with 22 million tonnes imported, for a decrease of 42%. This is to be expected, since 2013’s result was heavily loaded with stockpile material, much of it still ahead of the refineries.
This material has come from places such as Australia and India, but also Ghana, Fiji, the Dominican Republic and even Malaysia. So so far, no emerging source has elevated itself to a status anything like where Indonesia was at prior to the ban.
Meantime, China’s imports of alumina are accelerating. To the end of July, China had imported 3.2mt, for an increase of 72%. It’s a counter-intuitive result, since China has plenty of refinery capacity, which goes under-utilized when alumina is imported.
To some extent, the increase in imports was offset by a deterioration in price, with too much alumina in stock earlier this year when smelters were shutting their doors.
But those idled smelters are now restarting, and new capacity is coming on stream, and those plants and their raw materials managers can’t wait for entrepreneurs to negotiate with foreign governments and build infrastructure and establish bauxite supply routes from new sources. Those managers need the alumina now, not next year or the year after.
As a result, we at AZ China believe the level of imports of alumina will rise more strongly than we originally predicted, and the price of that alumina will also rise.
We will have more information on the supply balance in our upcoming Black China Report, due out tomorrow (Monday 15th).
Bloomberg today carried a story that Glencore is working to secure the rights to the Aurukun bauxite deposit in remote north west Queensland in Australia.
It is still early days yet for Glencore, as it is still seeking to secure a mineral development licence that would allow it to explore more fully the requirements for extracting, processing and shipping the ore.
Let’s hope the word “Aurukun” means “third time lucky” in the local Aboriginal dialect. The site has had a bumpy history. For thirty years, the French aluminium producer Pechiney (now part of Rio Tinto Alcan) held the licence to develop the site, but never did so. About 10 years ago, Chinalco successfully lobbied the Queensland government to take the licence off Pechiney, then finally succeeded in securing the licence for itself in about 2007. Despite a lot of promises and some initial funding, Chinalco was not able to get anything happening, and finally gave up on the site in about 2010.
I am not sure of the quality of the bauxite, but even if it is best quality, the location leaves a lot to be desired. The Cape York peninsula is extremely remote, and the reserves are on the “wrong” side - the western side of the cape where there are no shipping points and no deep water for vessels. That means railing the ore to the east side of the cape, but shipping on the east side is fraught with environmental danger. The Great Barrier Reef, a world-heritage listed site, sits off the coast of the sea ports there. Any increase in shipping activity or the size of vessels will be decried by environmentalists, who say that the Reef is already under attack on a number of fronts.
The one thing that Aurukun has going for it is that it has a natural market 2 weeks sailing time away - China. With world prices of bauxite set to find new higher floors thanks to bans in Indonesia and long shipping times from West Africa or the Caribbean, this gives Glencore or any other stakeholder more “wriggle room” to fund the huge costs challenges involved in developing the site.
Indonesia has no plans to lift the bans on exporting unprocessed ores, according to the country’s chief economic government minister.
The ban on unprocessed ores, including bauxite, has been in place since mid-January. Indonesia is seeking to gain the value-add economic gain from the capital investment in new refineries and smelters, and the ongoing revenue from export of processed ores, such as alumina. There had been some speculation that the ban would be watered down, especially in light of some exemptions being granted to some copper and gold miners. That speculation was boosted by the election of a new President who takes office in October. With a ticket of being pro-business and pro-economic reform, some commentators thought that the ban might be shunted to some time in the future.
But this week’s announcement has poured water on this speculation, with good reason. Any sign of weakness in the ranks among Indonesia’s leadership would only delay the investment they want to attract. Investors on the other hand will quickly hold off making commitments if they can obtain the ore without having to invest in new refining capacity.
The first real pain caused by Indonesia’s ban on the export of ores is beginning to show itself.
But not in China.
Indonesia’s GDP grew by 5.1% in the second quarter compared to a year ago, compared to 5.2% in Q1. Indonesian economists and commentators say the slowdown was caused by slowing investment and the ban on ore exports.
The announcement of a slight slowdown in economic growth comes at a critical time. Indonesia will have a new President come October, and incoming President-elect Joko Widodo won office on a ticket of reforming economic growth. It remains to be seen if his program includes any further loosening of the restrictions on ore exports. There has already been a couple of changes to the rules, surrounding copper. At this early stage, it is more likely the incoming government will focus on wooing investors. Such a move would help improve the capital formation aspect of GDP, and bring new ore processing plants into the market, allowing the country to reap the value-add benefits.
But that vision needs to survive any further attacks caused by sagging near-term economic indicators.
Indonesia stopped bauxite exports back in January, so we were a little surprised to see a shipment of Indonesian bauxite arrive in China in the latest import data.
The cargo, a parcel of 45,000t arrived at Yantai port in May. The arrival port was the first thing we checked - perhaps this cargo was an escapee from the Qing Dao financing fraud scandal. Yantai is just around the corner (so to speak) from Qing Dao, but our investigations suggest this cargo had nothing to do with the recent scandal.
Perhaps it was a cargo from a company with an exemption from the Indonesians? No, and in any case, we aren’t aware of any exemptions being granted. Perhaps it arrived in China months earlier but was not cleared through Customs until May? No, the import data captures the arrival of the cargo, not when it is cleared through Customs.
After much digging, we have discovered that the vessel that was carrying this cargo broke down. Huge inconvenience for the owner of the cargo, not to mention for the shipowner, but not unheard of.
So if anyone tells you that Indonesia is still slipping some bauxite out to China, have them check their facts.
Alumina is becoming more popular than bauxite, thanks to the Indonesian export ban.
It has been about half a year since the ban took effect and consequently, the bauxite import levels fell considerably and consecutively since February, and there have been no imports of Indonesian bauxite since April.
However, alumina imports continued to be stronger than the same period of last year.
The comparison between the performance of bauxite and alumina clearly shows that alumina now has a more competitive edge over bauxite in terms of cost and also indicates it is unlikely that the bauxite imports will increase in the short term.
Currently, both China domestically-produced and imported alumina are sold at approximately US$420/t which puts a firm cap on top of the bauxite price. Given that sea freight from more remote areas such as Africa and South America is more than double that from Indonesia and Australia, the highest China landed price of bauxite reached about US$90/t. This means that after adding VAT (Value Added Tax) , the cost could easily be over US$110/t. Therefore, the alumina cost could break US$470/t, assuming 2t bauxite are required to produce 1t alumina.
The 50 dollars gap is only a rough estimation, but it’s seems obvious that importing alumina directly from Australia makes more sense at present. Whilst the strategic importance of raw materials should be considered, we would say the import of bauxite won’t recover until the alumina price increases significantly which is unlikely to happen in the near future.
Several news publications have been running a story about the situation in Qingdao, where imported metal is apparently being held by the authorities pending an investigation.
AMM ran the story yesterday, and Metal Bulletin (a sister publication to AMM) ran it at the same time. The almost complete lack of any facts did not stop them.
As far as we can tell, the issue comes down to fake certificates of ownership for metal coming in from overseas. The certificates of ownership take the form of Warehouse Receipts. The owner of the metal can then take that receipt to a bank and use the metal as collateral for a loan. We understand the trader at the heart of the investigations, the largest in Qingdao according to our sources, offered the same warehouse receipt to more than one bank.
But there is no clarity on the type of product involved - is it bauxite, alumina, raw metal or perhaps alloyed rolling block? There’s no official announcement, no confirmation that it is only in the aluminium sector, not in copper, nickel or other imports - petcoke for instance - and no official indication as to who the trader is. AMM named Standard Bank of South Africa as one of the banks involved, but no second or third bank has been identified. Quite simply, there’s almost nothing but rumour supporting this story. It’s the reason why we haven’t reported on the situation, although we heard about it at the start of the week.
There’s also no discussion on what it could mean for metal supply. If the story is true, then it’s likely that genuine transactions are going to take longer to process, as documents are checked more carefully for authenticity, slowing cash flow for individual traders. But it’s unlikely to have much effect on the physical market, with one exception. Qingdao is home to a lot of finance trading, where the same parcel of metal might get rolled over several times, so any investigation or charges laid are more likely to hit the finance trade rather than the physical market. The one possible exception is alumina or bauxite. If physical alumina or bauxite shipments have been detained as part of the investigation, there may be one or two refineries/smelters who find themselves short of raw materials. But that’s hardly a problem, since there is plenty of both in China.
China’s Hongqiao Group (CHQ) has announced they have signed an MOU for the acquisition of Target Company, an African company, along with Winning Logistics, also of Africa. According to the MOU, they proposed spending $120M to obtain the rights to develop and produce bauxite over a term of 25 years. Hongqiao will hold 90% shares and Winning Logistics will own another 10% share after the acquisition. The formal agreement of acquisition is expected to be completed within four months after executing MOU.
Guinea has the largest bauxite reserves worldwide according to USGS data. Target Company owns the bauxite project in Guinea which has a total resource base of 2.2 billion tonnes, 624 million tonnes of which are classified as measured and indicated. As per Hongqiao’s existing aluminium capacity of 3Mt, the classified and measured bauxite can satisfy more than 40 years’ consumption.
The MOU has not indicated the detailed schedule of mining, though I think that will be laid out in the formal agreement after four months.
Of course, signing an agreement and buying a local company are only the first steps. CHQ still has to get the mine developed, and get the ore to the shipping point. But at least they have taken a first step towards securing their raw materials supply.
We will keep watching on the follow-up information about this project.
As the world’s largest aluminium producer and consumer, China’s alumina refinery production is forecast to grow by nearly 17 million tonnes by 2018, and a further 40 million tonnes by 2030. But due to the Indonesian government’s ban on mineral exports, China is facing a growing shortage of bauxite.
Based on AZ China’s Black China Report (BCR), bauxite imports into China continued to shrink in March, with only 1.8Mt, a decrease of 43% compared to the previous month. Volumes of bauxite from Indonesia imported into China were just 477kt, down by 78% m/m, while volumes from Australia were 769kt. March was the first time that Indonesia’s shipments into China were less than Australian quantities. In addition, volumes exported from Brazil and Ghana continued to increase, with 175kt and 117kt respectively.
Smelters around the world are facing the same question, namely how to fill the bauxite supply gap? Especially for China, which has been relying so heavily on Indonesia. Aluminium companies in China are faced with a choice of sourcing more alternative supplies from Africa, Jamaica, Guyana and Ghana, or build new overseas facilities. Although most analysts say that China’s economic growth is slowing and that base metal prices will find rebounding difficult, the main players in China have no alternative but to seek new opportunities.
China Hongqiao is searching African resources and might get agreements in the next six months. The company will try to get the controlling stake in any project they join.
In addition, Shandong Xinfa plans to build a new alumina refinery in Jamaica, and the government has signed a memorandum of understanding. The investment is about $3 billion, and includes a new alumina smelter with an annual capacity of 2 million tonnes and coal power plants. Xinfa Group can export 4.5 million tonnes of bauxite and 2 million tonnes of alumina per year over the next 25 years once this project comes to fruition.
But we must face the actual situation that due to falling prices, almost all domestic smelters are suffering a loss. They can’t afford more investment. Rather than new investment in alumina refineries in Indonesia or elsewhere, it is more likely we will see more closures and companies going bankrupt.
As memories fade of the Winter Olympics, it’s clear that not all Russians were focused on the events at Sochi.
Russian Aluminium company UC Rusal has stuck an agreement with an energy company in Indonesia for a project that will see the Russian company build an alumina refinery in that country. The strategic alliance will also see Rusal undertake exploration for bauxite, with both activities happening in West Kalimantan on the island of Borneo. West Kalimantan sits to the north side of Indonesia and east of Malaysia, with the latter country sharing part of the island. It was also home to a few other bauxite plays, with Indonesian company PT Antam announcing an alumina refinery there last year. Abu Dhabi company Mubadala was reportedly building a plant there as well.
It’s an interesting strategic move by the Russians. The Chinese have been exporting bauxite from Indonesia for the last 4 years or so, but have been prevaricating on building processing capacity. Indonesia brought in a ban on exports of certain ores, including bauxite, with the intention of forcing the Chinese to invest in the country and keep some of the added value at home. But China has been in no rush to outlay capital, since China already has plenty of processing capacity. The last thing the Chinese need is more processing capacity sitting outside their own country and on top of their existing capacity.
But Russia has no such limitation. Rusal can make a nice strategic play here, and become a large scale supplier of alumina to the Chinese market, or to their own smelters in the eastern side of Russia. The project will cost about $6 billion, which is a big burden for a company with a lot of debt already, but it positions Rusal very nicely.
It will be interesting to see whether Rusal calls on the Chinese to supply the technology for the plant. China has in recent years become the world leader at alumina processing technology - hence why they have so much capacity at home - so it might make sense for Rusal to award a contract to a Chinese firm.
The Indonesians have also been talking of a smelter being built on the island, but this would require a much larger commitment from the government for power, roads, and other infrastructure on an island that is still a tropical wilderness.
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