CBIX Index Wrap_27 January 201730 January 2017
Chinese Year of the Rooster – disruption, volatility and nationalism – a potent mix.
Due to the Chinese Lunar New Year celebrations (starting 28th Jan), only limited data is available for the update this week. However, we’ve taken the opportunity to make a few quick 2016 observations and some comments on 2017, as we see it unfolding.
On prices, Chinese alumina prices were unmoved leading into the holiday week, with the north price at RMB2,993/t (US$435/t) and the south at RMB2,960/t (US$430/t), with most transactions likely to cease now until 13th Feb. Bauxite prices also held their ground with CBIX at US$52.9/dmt.
Three weeks ago, news was leaked of Chinese authorities preparing draft air pollution control measures, commencing 2017, which included production cuts during the winter heating season (mid Oct to mid Mar) of up to 30% for some aluminum smelters in Hebei, Shandong, Henan and Shanxi and up to 50% for alumina refining production in the same provinces.
Authorities have subsequently released a draft of the measures and are now seeking industry consultation. The release of the draft signals a clear intention by the government to make good on its threat to act on air pollution, with primary Al and alumina identified as target industries.
If enacted, the measures would likely see further volatility in domestic alumina and primary Al prices. Chinese primary Al prices have been buoyed by the rumours preceding the draft, with prices holding above RMB13,000/t, and, following the draft release last week, futures markets climbed to over RMB14,400/t.
As a result of several red mud dam incidents during 2016, Chinese refiners already find themselves in the spotlight, for all the wrong reasons, and under increasing scrutiny from China’s environmental protection agencies. Now, with the spectre of forced capacity closures, it’s looking like an ominous start to the year for domestic refiners.
Recently announced amendments to the Indonesian minerals export ban, coinciding with a likely removal of the bauxite mining ban in Malaysia (Q2 2017),
may well see a shift in the global bauxite trade axis back toward South East Asia. Assisting the shift are reports of ongoing protests and ill sentiment from locals toward Guinea’s two major bauxite exporters, CBG and SMB-WAP. A major disruption to exports from Guinea has the potential to significantly impact bauxite prices during 2017.
Adding to the volatility is the emergence of new bauxite export projects around the world, with total nameplate capacity in excess of 100 MTPY on our numbers. They won’t all fly, but some will, which has implications for the global bauxite mining cost curve.
Freight markets clawed their way back from the brink during Q1 2016, as chronic fleet overcapacity and low oil prices slowly saw some respite. A continued upward trend in freight prices is forecast for 2017, as oil prices rise and fleet capacity slowly rebalances through early vessel retirements.
We’re in for quite a year! At the bauxiteindex.com we’re committed to keeping you abreast of all the changes throughout 2017, as well as providing you with the most up-to-date and accurate bauxite price trends.
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