Looming bauxite supply concerns aluminium makers

The global demand for bauxite, from which the aluminium smelter feedstock alumina is derived, is likely to rise at an annual rate of 6.9 per cent from 220 million tonnes (mt) in 2011 to 750 mt in 2030. The world is richly endowed with bauxite mineral, distributed across all continents. And, a good portion of that is in the “proved” category.

Even then alumina refineries across the world making do with procurement of bauxite from the market have started experiencing supply constraints. Concerns about shrinking availability of bauxite got heightened when under a new mineral policy, Indonesia slapped an export duty of about 20 per cent on 65 minerals. More ominously, Jakarta has ordained that starting 2014, there will be a ban on exports of bauxite and 13 other minerals so that whatever goes out of the country has got value added to it like in the form of alumina or white metal.

In the interim period, only those companies making commitments to create bauxite processing facilities, either on their own or in partnership with foreign groups, will be allowed to export the mineral. At 40 mt in 2011, Indonesia was no mean exporter of bauxite and as much as 35.79 mt of that went to China. The world’s by far the largest producer of aluminium, China is becoming increasingly dependent on bauxite of foreign origin to feed its alumina refineries, which now account for 37 per cent of global capacity, up from 11 per cent in 2004.

During this period, China’s bauxite imports have risen from three mt to 45 mt. Indonesian export restrictions have now started to bite China. While the country’s biggest aluminium maker Chalco has, as a result, announced a significant cut in alumina production for this year, five others are to restrict production by 10 per cent. China’s bauxite resource is smaller than India’s. But having built alumina refinery capacity of well over 40 mt, the country is left with no option but to go for “very intensive mining of bauxite” and resort to large imports of the mineral at the same time. Last year, China produced over 34 mt of alumina against 29.36 mt in 2010. No wonder as China is fast exhausting its own resource, it is acquiring bauxite deposits in Australia, Canada and Peru. China is now eyeing bauxite deposits in the Mekong region, particularly Vietnam.

Bauxite importing countries are nursing the fear that the Indonesian move may have a domino effect with some other exporting nations striking an identical stance. Prices of bauxite and alumina are derived from rates at which the white metal is traded. The three month LME rate for aluminium is below $1,900 a tonne, rendering well over 30 per cent of the world smelting capacity unviable.