AWAC considering bauxite shipments after Indonesian ban

The AWAC global alumina alliance of Alcoa and the ASX--listed Alumina is exploring the potential to ship bauxite from its Western Australia operations to fill the supply hole caused by Indonesia’s ban on exports of the alumina raw material.

AWAC and its predecessors have been producing bauxite for integrated alumina operations in WA’s Darling Ranges since the 1960s but exporting the lower value bauxite has long been considered uneconomic because of its low grade.

But Darling Ranges bauxite contains lower levels of reactive silica, which means less caustic soda is required in its processing.

That helps make it more competitive with higher grade material from tropical regions, at a time when China in particular is looking for replacement supplies following Indonesia’s 2014 ban on exports — an effort by Indonesia to force the development of a value-adding alumina/aluminium industry with the attendant benefits of investment and job creation.

AWAC’s decision to see if there is an export market for Darling Ranges bauxite was disclosed by Alcoa chairman and chief executive Klaus Kleinfeld at an investor briefing for Alcoa’s June-half earnings report to the US market that showed earnings increased by 16 per cent on the previous corresponding period to $US250 million.

At the briefing, Mr Kleinfeld said AWAC was now shipping bauxite samples to customers for “testing and to see whether we can also ship bauxite from Australia”. Analysts noted that success could add a new revenue stream for the business.

AWAC is 60 per cent-owned by Alcoa, the manager. Alumina owns the remaining 40 per cent. The results for AWAC cannot be directly drawn from Alcoa’s reported results but Alcoa did say its alumina results were the best since the first half of 2007.

But Alumina itself warned that September quarter outlook was “weaker’’ given recent falls in alumina and aluminium prices, offset in part by the fall in the dollar. Alumina shares were swept higher in yesterday’s rally in mining stocks after recent heavy falls, rising 5 per cent to $1.50.

Alumina also benefited from its report that it had received $US71m in the first half from AWAC — its only operating income. That was after the Australian unit of AWAC paid $US300m to secure a long-term gas supply deal for the WA operations. Cash outflow from Alumina to AWAC was negligible in the period.

The pressure on alumina/aluminium prices is due to over­capacity in the Chinese industry, the world’s biggest.

Alcoa told investors it now expected an annual surplus in China of 2.2 million tonnes compared with a previous forecast of 1.8 million tonnes. “This is largely driven by the lack of follow-through on curtailments on unprofitable operating capacity, even with the recent pressure on metal prices both in and outside of China. While the rest of the world remains in a deficit, new supply from China in the form of ‘fake’ semis has filled an increasing share of that deficit, which has placed the rest of the world total price under pressure,’’ Alcoa said.