China demand to drive 15 year-long bauxite boom, says Rio Tinto

China’s quest for raw materials for its aluminum smelters and alumina refineries promises to deliver a 15-year boom for exporters of bauxite, according to Rio Tinto Group, which is spending $1.9 billion to raise output.

Global demand is already growing rapidly and will outpace the 4 percent-a-year lift London-based Rio forecasts for aluminum in the medium-to-longer term, Alf Barrios, chief executive officer of the producer’s aluminum unit, said in an interview posted Thursday on the company’s website.

“Bauxite is a different story,” Barrios said. “China’s bauxite demand growth is forecast to be significant over the next 15 years, and it is something we are very keen to capture.” Rio’s Amrun development on Queensland’s remote Cape York peninsula, approved last year, will produce about 23 million metric tons from 2019, offsetting declines at an existing operation and raising total output by 10 million tons a year.

China has raised annual imports from 2.2 million tons to 50 million tons in the past decade as the quality and volume of domestic sources of supply deteriorates, Barrios said. With further growth forecast and rival suppliers in Malaysia and Indonesia restricted by curbs on raw material exports, Australia is seen as poised to benefit. Exports from the nation may rise at an average of 36 percent a year between fiscal 2018 and fiscal 2021, according to Australia’s Department of Industry, Innovation and Science.

Aluminum had advanced 3.3 percent this year to Tuesday’s close, after tumbling 19 percent last year on the London Metal Exchange, the most since 2008. Prices will face pressure in the second half on capacity additions and as idled plants return, Wan Ling, analyst at CRU in Beijing, said at a May conference.

Aluminum capacity growth in China may decline in 2016 on a slowdown in the construction sector, the largest downstream user, according to Bloomberg Intelligence. China is set to add about 3 million tons of aluminum production capacity this year, compared to 3.9 million tons in 2015. Bauxite is a mined material that’s processed into alumina, an intermediate product that’s further refined into aluminum.

Commodities markets, including aluminum, are likely to remain challenged in the short-term, though the price outlook should improve later this decade, Rio’s Barrios said. “In the medium to longer term, aluminum is one of the fastest-growing metals,” he said. Use of aluminum in vehicles is likely to account for about half of demand growth in the next 15 years, according to Barrios. Aluminum alloys are about one-third the weight of steel, meaning automakers are increasingly turning to the materials to boost efforts to lower vehicle weights and meet more stringent fuel-efficiency standards.

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