MetroCoal has taken a position in the bauxite sector through its investment in Cape Alumina Limited based on the current fundamentals and attractive outlook for the sector. The positive outlook is supported by a number of factors including the Indonesian government’s ban on bauxite exports and India’s recent announcement of their intention to increase their bauxite export tax from 10% to 20%.
Bauxite is one of the few commodities with increasing prices and a positive outlook.
Bauxite is the feed stock for alumina production requiring between 2 and 3 tonnes of bauxite per tonne of alumina. China is the world’s largest alumina producer and consumer, but is short of domestic bauxite and imports 40% of its requirements, historically mainly from Indonesia, and also from Australia and India.
Early in 2014, the Indonesian Government confirmed its ban on bauxite exports. Indonesia legislated to restrict bauxite exports from Indonesia to encourage the construction downstream processing facilities (alumina refineries) in Indonesia. At that point, Indonesia was China’s largest external provider of bauxite.
It is estimated that approximately 40 million tonnes of bauxite was exported from Indonesia to China in calendar 2013. With this supply together with imports from other countries, China had built up an estimated 12 month stockpile of required bauxite.
China has insufficient domestic bauxite to feed its burgeoning aluminium industry and has commenced importing from Guinea in West Africa at a CIF cost of approximately US$90 per tonne. As the stockpiles are run down China will be under increasing pressure to secure new sources of imported bauxite. Australia is well placed to fill this demand as a reliable, long-term supplier of high-quality bauxite.
Cape York’s proximity to China provides Australia with a logistical advantage over many alternative supply sources and Cape Alumina’s Bauxite Hills is well positioned to take advantage of the increasing demand for Australian bauxite.
Bauxite demand is being driven on the supply side by the Indonesian export ban, tightening of supply and increasing taxes from India and shortages of domestic bauxite in China while on the consumption side demand is increasing for alumina to meet the rapidly rising aluminium production and consumption in China, India and the Middle East.
CRU International Limited are forecasting a potential supply shortfall emerging from 2015. This is illustrated in the following chart published in their report Bauxite Long Term Market Outlook, 2013 Edition. It should be noted that the chart does not reflect the effects of the Indonesia export ban. This combination of demand and supply influences is expected to place further upward pressure on bauxite prices in the near and medium term.
CBX Price at posting:
3.5¢ Sentiment: Buy Disclosure: Held
