Aluminum: China is running out of bauxite

Posted: June 25th, 2012 | Author: | Filed under: Aluminum, China, Commodities, Metals | Tags: , | 1 Comment »

BauxiteAddicted to Indonesian bauxite, Chinese aluminum companies need to diversify their sources of supply or develop local production. Eventually, this supply issue should lead to an increase in China aluminum imports.

China has been dependent on imported iron ore to meet the needs of its steel industry development. This caused soaring prices for iron ore and metallurgical coal in the last ten years.

A parallel can be drawn with bauxite. Over the last 5 years, ever-increasing volumes of bauxite have been imported to feed aluminum refineries in China. The aluminum companies have decided to refine bauxite themselves rather than buy aluminum because of significantly lower investment costs in China.

China only holds 3% of the 29 billion tonnes of bauxite identified in the world. The bauxite is concentrated in three countries: Guinea, Australia and Brazil which control 58% of world reserves. Vietnam, with 7%, may soon join the top 3 huge deposits have recently been discovered. While it is easy to extract bauxite, its operation, as for iron ore, requires huge investments in infrastructure, railroads, trucks, conveyors, bulk carriers and ports. Clearly, Chinese bauxite reserves are insufficient to supply its aluminum industry which has become, in just a few years, the largest in the world.

AluminaChinese aluminum companies are very sensitive to policy changes in exporting countries. This is especially shown in the Indonesian government new raw minerals policy which recently imposed an export tax on 65 minerals. This decision is important because Indonesia is the largest supplier of bauxite to China. Mining companies must either build their own processing capabilities locally or partner with companies able to do so. By 2014, exports of raw minerals, including bauxite, will be forbidden.

To mitigate the consequences of this decision, more than 36 Mt of bauxite were imported from Indonesia in 2011. However, no more than 26 Mt were used in Chinese refineries and up to 10 Mt were stored. Number of Chinese aluminum companies have announced that they were reducing their refining capacity.

While some Chinese aluminum companies will agree to build processing capacity in Indonesia, others will look for alternative sources of supply, especially Guinea and Vietnam. However, if the expected price increases in response to the reduced availability of bauxite are sufficiently strong, Chinese production could increase, taking advantage of low quality deposits more expensive to extract.

There could be several major impacts for the market because of the relative alumina shortage. Aluminum cost production in China, already disadvantaged by the high electricity tariffs, will further increase. This rise in alumina prices will also affect aluminum companies that import all of their alumina. On the other hand, producers who hold large deposits of bauxite with their own refining capacity, will be favored. Finally, long term, China may increase imports of aluminum.

Pascal Blanc (220 Posts)

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.



One Comment on “Aluminum: China is running out of bauxite”

  1. 1 Indonesia: more mining export permits issued | Professional Purchasers' Blog said at 2:07 pm on July 5th, 2012:

    [...] Copper, Iron ore, Metals | Tags: indonesia, mining | No Comments » As we were mentioning in Aluminum: China is running out of bauxite, in May, Indonesia asked all mining companies to either build their own processing capabilities [...]


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