Malaysia bauxite mining and export ban to have limited impact on China aluminium

Ever since a Malaysian government official reportedly said in an interview on January 2 that the country will likely suspend bauxite mining and exports at certain mining sites out of growing environmental concerns, tension has been brewing over how the decision would impact China aluminium market.

China, a country that has relied heavily on bauxite from Malaysia since export ban by Indonesia – China’s once top supplier of the aluminium smelting raw material – in January 2014, is belived to be, however, coping with the scenraio comfortably, at least in the near term.

SMM understands, the stance shown by the Malaysian government does not mean the country will impose an outright ban on bauxite exports as Indonesia did. Malaysia is expected to resume bauxite mining and exports once local mining activity becomes regulated and after reclamation. The Malaysian government did not send signals of encouraging overseas companies to build alumina refineries in its country.

In the short term, it will have limited impact on Chinese alumina producers and unlikely to lift aluminum prices, SMM believes. Most Chinese alumina producers have bauxite stocks. Moreover, the supply gap can be filled with bauxite elsewhere, like Australia, India and Guinea, etc.

In the medium-to-long term, though, Chinese alumina producers will face growing production costs if Malaysia bans bauxite exports. This is because they will have to source more expensive bauxite from other countries after depleting stocks on hand.