'Berserk' aluminium boom signals bauxite bonanza for China's quarry

Key aluminium ingredient bauxite is shaping up as China's newest obsession in its mission to secure raw materials and once again minerals-rich Australia is a major target.

China's investment in Australia's mining industry plunged, along with the global commodities rout, dropping in 2015 to the lowest since 2008 as surging supplies created gluts of materials including oil and iron ore. It's a different story unfolding for bauxite, with a potential step up in interest led by Aluminium Corp of China, known as Chinalco, which confirmed it's looking at investing in projects in Australia.

Demand in China for the aluminium needed in air conditioning units to airliners will rise by almost a third by 2020, according to Morgan Stanley, while the nation's supplies of adequate raw materials to produce the metal are dwindling - spurring imports and encouraging new investments overseas in countries including Australia and Guinea.

Rio Tinto Group's US$1.9 billion (NZ$2.81bn) Amrun development on Queensland's remote Cape York peninsula may prove a key litmus test of interest. The world's second-biggest miner gave building approval in December, confirming there was "great interest" in sales talks from potential Chinese customers.

China is likely to turn to Australia for new sources of supply, particularly as weak commodities prices cut the costs of overseas deals, according to Bloomberg Intelligence analyst Yi Zhu. China Hongqiao Group and Chinalco may be interested in investing in Amrun, said Helen Lau, an analyst at Argonaut Securities (Asia) Ltd in Hong Kong.

Australia, the world's biggest producer of bauxite, lifted full-year exports to China by about a third in the 12 months to June 30, according to the Department of Industry, and a slate of projects are aimed at raising future output.

China's Xinfa Group Co is backing a project near Rio's Amrun, while Yankuang Group Co has a potential development in Western Australia and Shandong Nanshan aluminium Co agreed in August to provide a project loan to finance construction of Gulf Alumina's Skardon River asset.

By the end of the decade, new and large greenfield mines outside China will be required to feed Chinese needs, Australia's Alumina, partner in the world's biggest bauxite mining venture with Alcoa, said in a February filing. China will use bauxite imports for 60 per cent of its alumina output by 2030, compared with about a third of output currently, the company said.