China Bauxite Supply Loss Spurs Export Boom for Australia

Photographer: Brent Lewin/Bloomberg

Bauxite sits at the China Hongqiao Group Ltd. aluminum smelting facility in Zouping, China. China’s bauxite imports reached a record in January as buyers boosted stockpiles before Indonesia’s ban took effect on Jan. 12. Close

Bauxite sits at the China Hongqiao Group Ltd. aluminum smelting facility in Zouping,... Read More

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Photographer: Brent Lewin/Bloomberg

Bauxite sits at the China Hongqiao Group Ltd. aluminum smelting facility in Zouping, China. China’s bauxite imports reached a record in January as buyers boosted stockpiles before Indonesia’s ban took effect on Jan. 12.

Ian Levy is betting that the loss of China’s largest bauxite supplier will mean big gains for Australian producers of the ore used to produce aluminum.

China, the biggest base-metals user, saw bauxite imports plummet after a January ban on shipments by Indonesia, which sought to limit ore sales to spark investment in higher-value domestic smelting. Indonesia supplied 68 percent of China’s purchases in 2013, so the race is on to fill the void as demand grows, said Levy, the chief executive officer of Australian Bauxite Ltd. (ABZ), which will open its first mine late this year.

Commodity exports from Australia, already the world’s largest producer of bauxite from mines owned by Rio Tinto (RIO) Group and BHP Billiton Ltd. (BHP), tripled in the past decade as China’s economy became the world’s second-biggest, boosting imports of everything from coal to copper. While China stockpiled about a year’s supply of bauxite before the ban, Australia is already boosting output and exports to records, government data show.

“The number one beneficiary is Australia,” said Ivan Szpakowski, a Shanghai-based analyst at Citigroup Inc. China’s “inventories will run out eventually, and when we start getting into the fourth quarter of this year, and especially as we move into 2015, this will become a major issue,” he said.

Source: Australian Bauxite Ltd. via Bloomberg

The site of Australian Bauxite Ltd.'s Bald Hill project in Tasmania. Close

The site of Australian Bauxite Ltd.'s Bald Hill project in Tasmania.

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Source: Australian Bauxite Ltd. via Bloomberg

The site of Australian Bauxite Ltd.'s Bald Hill project in Tasmania.

Supplanting Indonesia

Chinese demand will help spur a 34 percent jump in Australian bauxite exports to 16.8 million metric tons in the year ending June 30, the government estimates. Australia, which became the largest supplier to China in March, shipped 1.02 million tons to the country in April, customs data show. Chinese customs did not report any bauxite imports from Indonesia for April and shipments plunged 78 percent from February to 477,386 tons in March, the data show.

Bauxite is mined near the surface and refined into an intermediate product called alumina, which is further refined into aluminum using electrical currents and chemicals. It takes four to seven tons of bauxite to make a ton of aluminum, the most-abundant metal in the earth’s crust used in everything from beverage cans to auto parts, according to Norsk Hydro ASA. (NHY)

Sydney-based explorer Australian Bauxite is set to start production by December in Tasmania, the island state about 260 miles (420 kilometers) south of Melbourne. The Bald Hill mine will initially produce 500,000 tons annually.

“Australia’s opportunity is now,” Levy told a Sydney conference on May 15.

Source: Australian Bauxite Ltd. via Bloomberg

An excavator collects samples at site of Australian Bauxite Ltd.'s Bald Hill project in Tasmania. Close

An excavator collects samples at site of Australian Bauxite Ltd.'s Bald Hill project in Tasmania.

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Source: Australian Bauxite Ltd. via Bloomberg

An excavator collects samples at site of Australian Bauxite Ltd.'s Bald Hill project in Tasmania.

Delayed Benefit

The benefit to Australia may be delayed until 2015. China’s bauxite imports were a record 8.02 million tons in January, before Indonesia’s ban took effect on Jan. 12, data show. The country has enough bauxite to feed alumina refineries for a year, according to estimates by researcher CRU and Oslo-based Norsk Hydro.

Global production surged 73 percent in the decade through last year to 273.8 million tons, while aluminum output jumped about 78 percent, outpacing demand for nine straight years, according to data compiled by Bloomberg Industries.

Ample supplies have kept aluminum costs in check. Prices are down 0.2 percent this year at $1,796 a ton on the London Metal Exchange and 5.6 percent below a five-month high on April 11. The Standard & Poor’s GSCI Spot Index of 24 commodities gained 4 percent since the end of December, while the MSCI All-Country World index of equities rose 2.2 percent and the Bloomberg Treasury Bond Index gained 3.1 percent.

Demand is slowing in China, where the economy is forecast to expand 7.3 percent this year, the smallest gain since 1990, which President Xi Jinping suggested this month is the “new normal.”

Not Enough

Aluminum Corp. of China Ltd., known as Chalco, said April 16 it will trim 1 million tons of capacity this year. The country accounts for about half global aluminum output. China imported 1.6 million tons of bauxite in April, down 77 percent from a year ago and the lowest since July 2012, data show.

Even Australia’s increased output won’t be enough to make up for supplies lost to the ban, Norsk Hydro Chief Executive Officer Svein Richard Brandtzaeg said April 30. Chinese refiners relied on 40 million tons of domestic bauxite last year and 71.6 million tons of imports, including 48.7 million tons from Indonesia, Bloomberg Industries and customs data show.

While China’s bauxite production is rising, it tends to be lower quality and more expensive to produce compared with imported supplies, according to Citigroup’s Szpakowski.

Jamaican Bauxite

Xinfa Group Co. may build a $3 billion alumina plant in Jamaica that will also produce bauxite. according to the Jamaica Bauxite Institute. China Hongqiao Group Ltd. (1378), the nation’s largest non-state aluminum producer, said this month it’s in talks to buy a bauxite mine in Africa to secure supply for as long as 30 years.

“China is going to import more from Australia as well as other countries like Guinea, Jamaica, Fiji,” said Wan Ling, CRU’s manager for China nonferrous metals analysis in Beijing. “All the imports from these countries added up together still won’t be enough to fill the gap.”

Transporting ore may prove costly, said Paul Adkins, managing director of Beijing-based AZ China Ltd., who has worked in the aluminum industry for three decades. The voyage from Jamaica to China around Africa is more than 14,000 nautical miles, according to calculations of sea-distances.org. That compares with about 3,200 miles from Gove in Australia’s Northern Territory and about 5,400 miles from Tasmania’s Bell Bay, where Australian Bauxite will send its ore for export.

Rio Tinto said in November it would suspend its Gove refinery to focus on bauxite output. Chief Executive Officer Sam Walsh said May 8 that it may focus on bauxite investment next year because of the expected rise in demand from China.

Price Outlook

China’s supply concerns may help push prices higher, according to Australian Bauxite. The average price of China’s bauxite imports was $60.49 a ton in April, up from $59.49 in March and the highest since October 2008, according to Bloomberg calculations. The price of imports from Australia was $56.64 in April from $56.70 in March.

“This is something that right now isn’t especially on the market’s radar,” Citigroup’s Szpakowski said. “It’s going to become a very big issue.”

To contact the reporter on this story: Phoebe Sedgman in Melbourne at psedgman2@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net Steve Stroth

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