The real informations (1)

Ron Knapp, Secretary General,
International Aluminium Institute, UK

25/02/2015
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Given the growing concerns surrounding good
quality sources of bauxite (e.g. Indonesian
export ban, political risk and even Ebola in
West Africa etc), what impact will these
constraints have on bauxite values? Indeed,
over the longer term do you think we will see
aluminium prices being driven by raw materials
constraints – much as we have seen in recent
decades in copper, zinc and iron ore?

Global reserves of quality bauxite are significant and a
sustainable supply is limited less by mineral resource availability
than by domestic resource development policies of source
countries, including investment in and speed of development
of the infrastructure necessary to deliver the product to market.
Many countries continue to enact industrial and regional
development policies that limit the availability of raw materials
to global markets, in order to stimulate investment in domestic
processing and value-added industries.
The Indonesian bauxite export restriction is the latest example
of an approach used by many countries to foster domestic
industrial and economic development, such as that of Australia
in the second half of the 20th Century, when a number of
minerals, including bauxite, were export restricted.
Historically, however, the value of bauxite has been linked to the
value of (its available) alumina, which was, in turn, linked to the
global aluminium price. De-linking of alumina from LME prices
and the increasing trade in seaborne bauxite means that the value
of bauxite will increasingly reflect the fundamentals of bauxite
supply, now controlled less and less by integrated bauxitealumina-
aluminium producers. So, longer term and in conjunction
with resource development policies of suppliers, you are likely to
see increased strategic partnerships being developed - to secure
supply - and increasingly volatile (if not higher) prices for bauxite
for those outside of such relationships.

As demand for alumina continues to grow,
what role do you see non-traditional raw
materials sources playing in the future? How
much potential do clays, etc offer in terms of
future supply? In particular do you think China
can balance its alumina needs using domestic
diasporic bauxite and fly ash?

As the supply of bauxite moves away from the traditional supply
regions, we can expect to see the cost of the delivered bauxite
increasing due to high infrastructure investments required to bring
the product to export ports, often requiring shipment from
beyond the more traditional Atlantic or Pacific ocean feeder ocean
basins – and then be faced with the cost fluctuations common
within the global dry bulk shipping market.
Combined with the growing alumina demand, opportunities will
emerge if and when the cost to China of producing alumina from
the bauxite it has secured is expected to exceed the cost of
production from non-traditional raw material sources for a
sustained period into the future. This will also require ongoing
work on the alternatives, such as fly ash, to bring down
production costs for a product of a suitable quality for feeding
the existing stock of aluminium smelters.

With the first alumina refinery in the Gulf a
reality and a second in the pipeline, where do
you anticipate future refinery investment –
more in China, the Middle East or elsewhere?
And is most investment likely to come from the
aluminium majors moving back upstream, or is
there scope for new non-integrated players?

Our industry continues to evolve structurally; no longer is there
a common “one size fits all” in terms of the corporate model that
can be applied to aluminium. We now have a combination of
integrated and product-specific companies, we have some
moving downstream, some moving upstream – and a much
more active group of companies that can be best described as
independents, without holding investments in other segments
of the industry. The most recent development has been the
emergence of independent bauxite producers – and this is likely
to bring a further round of new corporate linkages as companies
with refineries seek to address and manage supply risks.