Red ore trade shines on

If there’s one area of the global economy that has demonstrated the sheer draw and influence of China’s economic take-off – even as it readjusts to slower growth – it is the trade in bauxite ore.
 
Global demand is rising by the year for the red ore needed to make the aluminium that is found in all manner of appliances and structures in modern China and elsewhere. The estimated 28 Bt of world reserves of bauxite are found far and wide – but mainly in the tropics – from the Caribbean and West Africa to the Malaysian and Queensland peninsulas.
With many of these mines in remote locations, its extraction is driving extensive investment in cargo handling facilities to bring the ore to the world’s smelters and refineries for the estimated US$100B aluminium industry.
 
Big appetite
 
China is the world’s largest consumer of bauxite, and producer and consumer of alumina and aluminium. The People’s Republic accounts for more than half of the world’s supply of the metal, with its smelters producing 31 Mt in 2015, according to the International Aluminium Association.
However, as China’s outputexpands and spills into global  markets, aluminium prices are sinking, and a mounting surplus is fuelling an industry crisis. Faced with production costs that are relatively high, the big aluminium producers outside China – including Russia’s Rusal, Anglo-Australian Rio Tinto and Alcoa of the US – are under pressure to cut production at their smelters, but they risk losing market share.
The big aluminium producers are taking different approaches to lower prices, reduced margins and declining profits. Rio Tinto believes that size and efficiency – it is one of the industry’s lower cost producers – can help it weather the storm, and it will increase production in 2016.
In recent years, many of the industry’s higher-cost smelters and plants have been forced to close across the US, Australia, Brazil and Italy. Alcoa is reducing capacity and closing the largest smelter in the US at Warwick, Indiana (although low alumina prices have allowed it to postpone the shutdown of another at Ferndale, Washington). Meanwhile, global demand for aluminium is expected to rise 6% this year, according to Alcoa.
Bauxite rebellion
 
China’s aluminium production growth (which was 11% last year) and the sustained rise in consumption of the metal have placed pressure on the global supply of bauxite.
 
But there is an amalgam of other factors too. The steady rise in Chinese aluminium production in recent years is depleting its domestic deposits. A ban by Indonesia on bauxite exports, in an effort to kick-start the country’s own processing sector, has altered world supply. And a temporary moratorium on bauxite mining by Malaysia at the start of 2015, amid environmental concerns, has added another twist to the global trade. Meanwhile, independent Australian miners, looking to enter the Chinese market, have faced delays on proposed mines due to environmental bureaucracy
 
Indonesia was the top bauxite supplier to China before its government placed a ban on the export of the ore – as well as nickel, copper and zinc – in January 2014.
Jakarta’s policy aimed to improve returns from resources that had been shipped out of the country, and to encourage investment in the country’s smelters.
Policy change?
 
In February 2016, Indonesia’s mining minister, Sudirman Said, said that the government would relax the curbs in 2017, when it reviews its metal export rules and policy on minerals.
 
In the meantime, the law is widely seen to have lost billions of dollars of revenue for Asia’s largest economy, and boosted the prospects for rival bauxite suppliers, particularly in Australia and Malaysia.
Prior to Malaysia’s move in January, the Indonesian mineral export ban had a big impact on the global bauxite and aluminium industry. Jakarta’s policy has had a significant impact on imports to China, according to consultancy Clarkson.
China accounts for around 90% of the world’s bauxite imports, while Indonesia, before the ban, supplied some 70% of global bauxite exports. But China has been able to find alternative supplies. Malaysia increased its mining output sevenfold and  increased its share of Chinese bauxite imports to 45% in 2015, according to UK consultancy Roskill. Malaysia also overtook Australia as China’s top supplier.
 
Tiger’s tale
But Malaysia’s three-month moratorium on bauxite mining from 15 January has added further uncertainty to the red ore trade. Kuala Lumpur wants to certify that miners are complying with  environmental rules in Pahang state, which holds the country’s biggest reserves of bauxite.
 
In the meantime, exports have continued of existing stock at Malaysia’s ports, with 3 Mt of bauxite stockpiled at the start of the ban in the regional port of Kuantan.
 
Chinese refiners have expressed confidence that Malaysia will resume normal production. However, Roskill has warned that the viability of Malaysian bauxite as a long-term replacement for Indonesian material “remains in question”, in part because of environmental concerns.
Oz stepping in
 
Australia’s miners have seen an opportunity to fill the void left by Indonesia’s export ban, although they trailed behind the rapid rise of Malaysian exporters through 2014 to the start of this year.
Australian bauxite exports to China were up by a quarter to 20 Mt in 2015, compared with the 24 Mt from Malaysia, according to government statisticians at China Customs. Australia’s smaller miners have looked to seize the day. In January, Australian Bauxite launched its new mine in northern Tasmania, although it had to halt production as it waited to secure shipments to China. “There is a considerable amount of uncertainty in the bauxite market right now,” says Ian Levy, CEO of Australian Bauxite.
Australia still remained the world’s largest producer of bauxite in 2015 – and as the second largest exporter of bauxite to China was ahead of rivals India, Brazil and Guinea. Furthermore, Chinese demand has encouraged Australia’s resources giants to up their bauxite mining activities. 
 
Metro Mining’s Bauxite Hills Project near the port at Skardon River in Western Cape Rock, North Queensland, has the potential to produce 1.95 Mtpa of ore, and is expected to begin production in the fourth quarter of 2017.
According to Roskill, there are a number of other Australian projects that involve joint ventures and direct agreements with Chinese refiners, which will help to fill some of the Chinese shortfall. 
 
Beyond Asia
 
With the loss of Indonesia as a supplier of bauxite to feed its refineries in 2014, China turned elsewhere and found alternative supplies. Its top five exporters in 2015 – which also included Brazil, India and Guinea – were also among the leading bauxite producers.
Outside this group, Vietnam is one of the other countries that could increase its bauxite exports to make up for Malaysian shortfall, according to Roskill; but it has its own environmental concerns to contend with. Moreover, China’s bauxite miners can still ramp up production, and the aluminium industries are still in a state of oversupply, says Roskill.
Adventurous miners are also looking elsewhere for supplies of bauxite – and for markets other than China.
For example, Canadian group First Bauxite has made moves to develop activities in Guyana. The Toronto-listed group has completed a study into mining on the northern coast of South America and shipping to the US Gulf Coast for processing. Its Bonasika project includes development of bauxite mines and the construction of wharves on Guyana’s Demerara River.
In the US, meanwhile, it is planning a US$200M plant on a 30-acre site at Port of South Louisiana’s Globalplex terminal, to process the bauxite shipments. The terminal will use the bauxite to produce  ceramic proppants for the oil and gas industry.
Jamaican potential
 
In the Caribbean, Jamaica offers the world’s sixth largest bauxite reserves, totalling 2 Bt, according to the US Geological Survey, but it is a relative minnow among world exporters, with only 10.7 Mt shipped in 2015.
Efforts by local producer Noranda Aluminum to ramp up production have been ill-starred – tax wrangles with the Jamaican government have tipped the miner into bankruptcy protection in the US. Noranda only last year finished an US$11M deepening and expansion project at its port facility in Discovery Bay, St Ann, to allow ships to increase exports. The group is allowed to export 5.4 Mtpa until 2017, when it drops to 4.5 Mtpa. Noranda will continue to mine while it restructures.
 
Into Africa
 
China has pursued a wide range of mining deals overseas over the last decade, to supplement its own domestic resources, and to pre-empt their depletion, with much of this activity centred on Africa.
US research analysts IntelligenceMine have reported that there are more than 120 China headquartered mining sector companies with assets in the continent. Securing new sources of bauxite has been a focus of this activity, and the world’s fourth largest bauxite producer, Guinea, has been a major draw, with its 7.4 Bt of reserves – which amounts to a quarter of the world’s bauxite deposits.
 
UK consultancy firm BMI Research expects Guinea to increase its bauxite output from 19.3 Mt in 2015 to 29.6 Mt in 2019 – representing average annual growth of 9.1%.
Promising projects
 
In 2015, China Hongqiao, China’s second largest aluminium producer, finalised a US$200M deal to mine and ship around 10 Mtpa of bauxite from Guinea, along with consortium partners Singapore-based Winning Shipping, the port of Yantai in China and Boke Mining Co, which mines the area northeast of Conakry. The first phase of the Boke project has been the construction of three bauxite export berths, with capacity set to reach 10 Mtpa.
In November, Shandong Xinfa Aluminum, another major Chinese producer, revealed that it is looking to invest US$14B in the BoffaSantou-Houda bauxite project in Guinea, which was abandoned by BHP Billiton in 2013.
Russian interest
 
Russians are also prominent in the scramble for Guinea’s bauxite reserves. In 2016, production is expected to commence at the Russiancontrolled Alufer Bel Air mine, part of tycoon Vladimir Iorich’s resources empire. The mine will have an initial output of around 2 Mtpa, reaching 10 Mtpa at full production capacity.
 
In 2015, Russia’s Rusal, the world’s largest aluminium producer, went ahead with its US$220M Dian-Dian bauxite project in Guinea, which will exploit the world’s largest bauxite deposit, with reserves of 564 Mt. As well as construction of a 3 Mtpa bauxite mine, with the potential of up to 6 Mtpa, the investment includes port, rail and road infrastructure.
Scramble for Iran
 
Recent geo-political developments in the Middle East could spell new opportunities for aluminium producers, following Tehran’s agreement to comply with international nuclear obligations and the UN Security Council’s lifting of economic sanctions.
Iran has some bauxite and produces alumina and aluminium, but it needs access to new technology and imports (it pays substantial premiums for Indian alumina).
 
Tehran will now have access to shipments from Australia, Europe, Vietnam and possibly the Americas. New revenue from oil exports will help facilitate economic expansion, increasing demand for raw materials, smelting capacity and aluminium.
Foreign investors from China and Europe are already lining up to do business in the new Iran. Italian and Chinese interests are looking to partner in the second phase of the development of the Salco smelter plant, the largest in Iran.
France’s aluminium company, Fives, signed a deal to invest in the country when Iranian officials visited Paris in February, while another French firm Fiault has also been working on a deal with Tehran. Fifteen projects for production due to be rolled out include aluminium and bauxite, according to Iran’s deputy industry and trade minister Mehdi Karbasian. Iran’s aluminium production is expected to grow to 1 Mt in 2017, compared with 820,000t in 2013.