The real informations (2)

Frank Feret, Consultant, Feret Analytical Consulting,
and Vice President, ICSOBA
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?

All the bauxite exporting countries are affected by increasing
restrictions against mining. In several countries like Indonesia,
Guyana and Jamaica, the bauxite industry is fighting for survival.
One of the major reasons is that the price of alumina has grown
twice as fast as that of bauxite in the last 20 years. Bauxite
producers are generally bound by long-term contracts and in
many cases cannot expect the price of their commodity to
increase significantly. The second reason can be illustrated by the
example of India where mining is vigorously opposed on ground of
tribal sentiments and environmental concerns. The third reason is
that bauxite producing countries would like to see expansion of
their own refining/smelting facilities for employment growth and
social cause. For various metal producers this would mean buying
alumina rather than bauxite and giving up on local alumina
refineries. Savings on transportation cost are also worth
mentioning. It remains to be seen, however, whether alumina
buyers will continue procuring raw materials from politically
volatile nations.
Construction of a new alumina refinery takes a long time. One
cannot expect a shift in increased trading of alumina anytime
soon. Therefore, new sources of bauxite must be found or
production in active mines must increase in order to supply to
existing refineries. With generally decreasing bauxite quality more
sampling and more stringent methodology for estimation of
bauxite quality should be applied. The industry should know
better the commercial value of its principal commodity and use
mineralogical rather than elemental composition for its
estimation. There is enough bauxite around the world for years to
come and one needs to worry about how to get it rather than
where. It seems that an increase in bauxite cost is inevitable in the
future, which will push the alumina price up, as well.

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?

Since the 1950s, about 35 alumina refineries and 60 aluminium
smelters have been built in China. Presently China produces
50% of the world’s alumina and aluminium. Not only does
China produce more and more metal on an annual basis but its
internal aluminium consumption continues to grow steadily.
Primary aluminium production capacity has increased from 18m
tonnes in 2008 to 30m tonnes in 2013.
China’s aluminium industry is highly dependent upon external
resources. For example, between 2007 and 2013 the total
external dependency rate on bauxite and alumina was almost
50%. In 2012 alone the alumina production capacity and output
has increased by more than 10%. Following the export ban on
Indonesian bauxite, the objective is to increase alumina
production capacity from fly ash to 3.6m tonnes by 2015.
However, existing Bayer plants cannot be converted from
bauxite of elevated tri-hydrate content to locally available
diasporic bauxite. Therefore China will have no choice but to
continue to import from external sources. It is not realistic to
expect that clay will replace bauxite in production of
metallurgical alumina anytime soon. The cost of producing
metallurgical alumina from clay is simply a few times higher
than that corresponding to bauxite. As long as bauxite
continues to be available it will remain the principal source of
alumina production.

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 nonintegrated
players?

The Middle East is becoming more and more interested in
becoming independent from external alumina supplies. In
addition to a new project launched by Emirates Global
Aluminium in Dubai, construction of a new alumina refinery is
also being looked into by Sohar Aluminum in Oman. The
Ma’aden complex in Saudi Arabia strongly satisfies needs of this
country for metallurgical alumina. However, China’s appetite
for additional alumina has been continuously growing but is
difficult to estimate at the present time.