Indonesia export ban forces China to seek other bauxite sources

PERTH (miningweekly.com) – The aluminium industry, specifically in China, is facing a growing shortage of bauxite  following the Indonesian government’s ban on mineral exports, advisory firm Wood Mackenzie (Woodmac) said on Friday.

As the world’s largest aluminium producer and consumer, China’s alumina refinery production was forecast to grow by nearly 17-million tonnes by 2018, and a further 40-million tonnes by 2030.

Woodmac estimated that China would need an additional 130-million tonnes of bauxite over 2013 levels and would consume as much as 240-million tonnes of bauxite by 2030.

Until recently, Indonesia has been the mainstay of China’s demand for bauxite, supplying around 65% of the country’s supply in 2013.

Woodmac head of metals and mining research Julian Kettle said that Indonesia’s ban on mineral exports could be transformative to the global bauxite market in the longer term, but in the short to medium term the impact would be less significant owing to swollen stockpiles and source diversification.

“China is the main global player in the aluminium market representing between 40% of supply and 60% of demand. Our most recent forecasts indicate that global alumina refinery production will rise to almost 140-million tonnes by 2018, which means we'll see bauxite demand rise by almost 80-million tonnes to 350-million tonnes.

“With China's alumina demand set to increase so sharply, there will be huge implications for bauxite demand. We estimate China will need access to as much as 240-million tonnes of bauxite by 2030 and as it only produced 72-million tonnes domestically in 2013, huge uncertainty remains over the import versus domestic supply mix.”

Kettle noted that the Asian major would look to both alternative import sources and developing domestic mines.

He suggested that China has, in fact, been making moves to diversify supply for some time in preparation for the ban.

Woodmac aluminium analyst Carl Firman pointed out that in recent years China has been sourcing additional quantities of bauxite from a variety of other countries, most notably Australia and India. While these countries were not currently supplying huge volumes to China, in time they could.

“This is a strategic move by China to ensure it can firstly meet the direct needs of the coastal aluminium refineries it's built up over the years, but secondly in preparation for the ban coming into force. We estimate that China has accumulated more than a year’s worth of bauxite supply. This works out at about 40-million tonnes, or four-fifths of the entire volume of bauxite exported by Indonesia in 2013,” Firman added.

Kettle, meanwhile, pointed out that China's vast bauxite stockpiles meant that in the short term at least, there would not be an immediate impact on metal production.

“This strategic effort on China's part has ensured the breathing space required to either develop new bauxite mines domestically, or establish new sources of supply through imports.”

Woodmac has suggested that three major basins in Guinea, Australia and Vietnam could more than meet China’s future bauxite needs, but noted that there were significant challenges to be overcome.

“China does have options, but they come at a price. Developing new bauxite sources in other parts of the world will require significant investment as host governments don't just want mines - they want added value in the form of refineries and smelters,” Firman said.

“There are also the high cost hurdles of resource nationalisation, surrounding politics and developing infrastructure that China will have to negotiate in order to establish new trade routes. The big question is, will China look to these alternative sources and significantly increase imports or will it develop its own domestic resources to meet its insatiable demand? One thing that is for sure is that there are lots of opportunities for host governments open for China's business.”

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