Chinese demand for 3rd party bauxite to increase 50% Wan Ling -...

Chinese demand for 3rd party bauxite to increase 50%


Wan Ling - 14 April 2015
Bauxite shortages in 2016 and beyond present opportunities for Producers

Malaysia has continued to surprise the bauxite market with the extent to which it has partially replaced Indonesia in satisfying Chinese demand. China has become increasingly reliant on Malaysian bauxite, with Malaysia now the second largest exporter to China, after Australia. Indeed, the extent to which Malaysia has been able to increase bauxite exports to China has made the likelihood of Malaysia exporting at least 8M tonnes of bauxite in 2015 a strong possibility. As a result, Malaysian bauxite exports have further lowered China's need for more expensive Pacific and Atlantic ores in the immediate future.

However, CRU forecasts that Malaysian bauxite will provide only a short-term solution for China and bauxite shortages beyond 2016 mean that ores from the Pacific and Atlantic markets will be required to make up the balance of its bauxite needs in the next 5 years. The chart below shows CRU's estimates of Chinese bauxite imports by region/country for 2013, 2015 and 2019.

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We assess that Atlantic ores will still be required to make up the balance of China's bauxite needs by 2019. Therefore, the composition of China's bauxite exports will become more expensive on average and Pacific bauxite suppliers - particularly those in Australia - will experience greater pricing power as shipments are increasingly priced against the Atlantic alternatives.

Furthermore, third party bauxite demand from China will remain strong. Chinese refineries, including those situated in the Shandong province, will keep increasing production in line with smelter demand growth, and CRU expects third party bauxite demand in China to increase by 50.9% to total 51.4M tonnes in 2019.

Bauxite price growth will remain a positive story from 2015 onwards as the Indonesian bauxite export ban is likely to remain in place. The general consensus continues to be that it is highly unlikely for any alterations to be made to the export ban. In December 2014, Indonesia's Constitutional Court upheld the country's ban on exports of raw mineral ores that was implemented in January 2014. Steps were taken by the Indonesian Association of Mineral Entrepreneurs and mining businesses to seek a revision of articles within the 2009 law that formed the legal basis of the ban. However, the Constitutional Court ruled that the enforced law was acceptable to ensure domestic ore supplies towards value added investment. In March 2015, it was once again reported that Indonesia might consider bauxite quotas related to alumina refinery project developments. However, it is too early to say whether such arrangements will be made.

Overall, growing Chinese demand for third party bauxite and imported alumina means that it remains a bullish time for aluminium raw materials and bauxite will have its place among the best performing commodities in the next 5 years. Opportunities will exist for both bauxite producers and those financial institutions examining project financing in the years ahead.

http://www.crugroup.com/about-cru/cruinsight/chinese_demand_for_3rd_party_bauxite_to_increase​