"Boring’ bauxite develops a shine as supply and demand drift apart"
"Metro says prices are surging. And now Flanagan’s Arrow has put its foot on a big bauxite project in top producer Guinea; Plus, $9m Gateway pockets $14m from sale to Brightstar. Barry FitzGerald August 1, 2024
Bauxite, the principal aluminium ore, doesn’t get much airplay in this market, mostly because much of the production of the stuff is hidden away in the integrated aluminium operations of Alcoa, Rio Tinto and South 32.
But there is also a dynamic seaborne market for bauxite, dynamic because the world’s biggest aluminium producer China is increasingly reliant on imports to feed the fleet of aluminium smelters it has built in recent decades.
While the West is doing its darndest to move away from cheap energy in the form of coal to generate the huge amounts of electricity required in the smelting process, China has embraced it with gusto.
Think of it as a way to convert dirty coal into US dollars by producing molten electricity in the form of aluminium. Quite smart really, and a strategy once pursued in the eastern states of Australian, starting off in the 1960s.
The Chinese aluminium industry doesn’t face the same green backlash that is pressing the Australian industry. But it does have a bauxite problem. Its domestic supplies haven’t been able to keep up with the growth in metal production.
From importing small amounts at the turn of the century, China’s bauxite imports now account for more than 55% of its needs. It mostly comes from Guinea in West Africa and from Australia.
Tightening things even further is aluminium’s key role in the world’s decarbonisation and electrification efforts, leading to strong annual compound growth in demand for aluminium, and by extension bauxite/alumina. Forecasts out there project that aluminium demand will grow by 40% by 2030.
That won’t happen without underlying growth of bauxite and alumina (4-5t of bauxite is required for the 2t of alumina needed for 1t of aluminium). As it is, unlike copper to which aluminium is a major substitution threat in electrification, the aluminium price has not been doing much.
It’s currently $US2,290/t on the LME which is below the June half average of $US2,358/t. But things have been stirring in bauxite and alumina pricing in response to the challenges China faces in keeping it alumina refineries and aluminium smelters full.
METRO MINING:
Outside of big integrated bauxite producers, there is precious little exposure to the bulk commodity on the ASX.
In fact, there is only one independent bauxite producer – Metro Mining (ASX:MMI), trading on Thursday at 4.7c for a market cap of $280 million.
Because of the goings on in the seaborne bauxite market outlined above, and because of its locked in growth to 7mtpa of bauxite from its Bauxite Hills operation north of Weipa on Cape York Peninsula, the cash-generating Metro is one of the best performed mining stocks on the ASX this year.
Its share price gain since the start of the year is a hefty 124%. Again, the performance is based on a commodity that gets little airplay on the ASX. It is an opaque market but thankfully, Metro is a prime source of what is going on.
This is what it had to say in its June quarterly report released to the ASX on July 26:
“The Metro expansion is perfectly timed as the traded bauxite market continues to grow strongly with Chinese imports up 7.4% year on year. Metro (CIF) prices are up 19% YOY and 13% over Q4.
“FOB prices are also up 13% on Q4 2023 and a further 8% under negotiation for Q3 2024.
”It noted that China’s bauxite imports were a record 142 million tonnes in CY2023, and 13% above CY 2022. “Chinese domestic bauxite supply remains very tight, and prices are up strongly,” Metro said.
“This is having a positive effect on the bauxite market pricing. The most recent spot market pricing (CM Group) shows continued firming price for Guinea bauxite at $US75 /DMT, up 34% since January 2022, and prices for Australian high temperature bauxite at US$59.5 /DMT, up 48% over the same period, with the strongest rise in the last 6 months."
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