China’s bauxite blockade

By Jessica Roberts
Published: Monday, 22 June 2009

Refractories market looks to alternative minerals as China further squeezes bauxite exports – but new bauxite sources are emerging

“With only half the year’s bauxite quota to be supplied, now is the right time for the Chinese government to stop its licensing system,” was the opinion of one industry participant, following the news that China has stalled its bauxite tender for the second half of this year – effectively depriving the non-metallurgical (non-met.) bauxite market of 500,000 tonnes of material (see IM July ’09, p.6).

Bauxite is in a sticky situation at present. It is best known as the primary ore for alumina (and thus aluminium) production; however, in its own right bauxite is a valuable industrial mineral.

Bauxite finds applications in abrasives, cement, chemicals, proppants, refractories, slag conditioning, and welding; not to mention the plethora of non-met. applications for alumina grades derived from Bayer alumina. Volume-wise, however, refractory grade is the biggest market for non-met. bauxite.

Depending on aluminium demand, around 90-95% of world bauxite production – which amounted to 205m. tonnes in 2008 – is refined by the Bayer process to produce alumina. The remaining bauxite is divided between non-met. markets.

The size, demand and health of the non-met. bauxite market is largely defined by two factors: the mineral’s metallurgical market (ie. aluminium demand), and the world’s limited commercially developed sources of non-met. grades. As a result, when times are bad for aluminium (as they currently are), non-met. markets benefit.

That said, however, the scenario above seems to have bypassed non-met. bauxite completely, and instead it is stuck in a lose-lose situation – particularly with regard to refractory bauxite. The reason for this is China.

The China factor

Global bauxite supply and demand is being driven by Chinese domestic consumption. China has implemented some staggering investments for its alumina capacity, year-on-year, since around 2000, and state-owned company Chinalco is now the second largest alumina producer, and the third biggest producer of aluminium, globally.

Between them Chinese companies mined 32m. tonnes of bauxite in 2008 (China accounted for 15% of global production), while the country’s alumina production was some 19.5m. tonnes. Consider also that China imported around 22.7m. tonnes of bauxite in 2006 – all because of aluminium demand.

Such huge amounts of bauxite production indicate that, as many suspect, China is attempting to become self-sufficient in aluminium: it is certainly no secret that the country has switched to domestic demand priority (see IM April ’09, p.26: The Dragon has turned).

One China-based source told IM: “The Chinese alumina business grew dramatically until 2008 on the back of historically unusual – and unsustainable – high alumina and aluminium prices. Only in 2005-2008 did aluminium prices stay above $2,000/tonne [Figure 4], and now once again prices are back to normal long-term levels of $1,300-1,900/tonne [Figure 5].”

The issue with these lower prices is that, in many cases, the cost of producing aluminium in China is more expensive than the current market value. This is because of a number of factors but is largely owing to high energy prices (Figure 1), and the type of bauxite that naturally occurs in China. This means that it would actually be cheaper for China to import aluminium.

As one trader commented: “What China has failed to realise is that in the international market it is no use trying to be self-sufficient when your production cost is far above the international long-term cost – especially during a financial downturn.”

If China is indeed attempting to become self-sufficient in aluminium, the recent failure of the Rio Tinto-Chinalco deal would have been a major step back in its plans: China’s reaction to this is awaited in trepidation by some quarters.

Domestic diaspore

China’s own bauxite reserves consist mainly of a high alumina, low iron bauxite, called diaspore; certain deposits of which meet non-met. grade specifications.

It requires processing temperatures of 200-240°C (other metallurgical bauxite grades require 150-230°C), which has necessitated Chinese producers adapting the Bayer process to make the diaspore suitable for aluminium production.

This practise has put further pressure on the refractory bauxite market, which is limited to sourcing most of its material from China (mainly Guizhou and Shanxi provinces) and Guyana (operated by Bosai Minerals Group of Chongqing, China).

As a result, non-met. bauxite prices soared in 2008, to around $600/tonne (Figure 2). Some reports indicated that, at the height of the 2008 commodity boom, prices for refractory grade Chinese bauxite were more expensive than those for white fused alumina – prompting consideration in using such high purity materials as a bauxite substitute (see later).

One bauxite processor exclaimed: “What is incredible is that with some of the best raw bauxite in the world – diaspore – the Chinese government’s policy has been to use it to make aluminium... On an economic basis one would wonder why such a valuable resource has been directed into such an energy intensive business.”

Now the boom has bust, where does this leave China?

Recent reports in Metal Bulletin and the Financial Times claim that aluminium inventories at the London Metal Exchange’s (LME) warehouses are at an all-time high: analysts expect inventories to breach the 5m. tonne mark by Q3 2009. There is simply no demand.

But despite this, in June prices for aluminium reached a five-month high of $1,701/tonne. Artificially high prices have been created thanks to worries over security of supply. And now investors who gambled that prices would fall (based on flat demand from construction and other sectors) have panicked and bought back these contracts on the first sign of pricing improvements – thereby pushing prices up further.

The problem with these artificial prices is that they have tempted some Chinese smelters to re-start production, as prices creep nearer to profitable figures, which has had the unfortunate effect of pushing even more unnecessary material on to the market. This also has implications for non-met. bauxite.

 Figure 1. Crude oil prices ($/bbl), 1991-2009, Europe Brent spot price FOB
 
 Source: US Energy Information Administration



 Figure 2. Refractory grade bauxite prices, FOB China, from 2006 to 2009.
 

 Figure 3. Calcined alumina prices, medium soda, bulk FOB, from 2006 to 2009.
 

 Figure 4. Aluminium prices (LME cash), from 1991 to 2009, High Grade 99.7%
 
 Source: London Metal Exchange, Metal Bulletin

 Figure 5. Daily aluminium prices (LME cash), from 2 January to 15 June, 2009, high grade 99.7%
 
 Source: London Metal Exchange, Metal Bulletin

Exports tightened


China’s gargantuan appetite for raw materials over the past decade has led to a change in its export policies, such as export quotas and taxes. Significantly – for the non-met. market at least – the most recent of these changes has been the postponement of China’s non-met. bauxite quota for the second half of the year, due to what it says is poor demand.

Tim Geldmacher, managing partner of German minerals trader Cofermin Rohstoffe GmbH, which deals in a number of non-met. bauxite grades, told IM: “Generally speaking the market for bauxite always depends on the export policy of the Chinese government.”

“Export taxes and licenses form a big share of the price, which means that availability and price of the product is not fully market driven. Any decision by the Chinese government may change the scenario on short notice,” Geldmacher commented.

What this all means is that, ironically, at the time when huge stockpiles of cheap, refractory bauxite should be building up – owing to high inventories of aluminium – instead the grade is expensive and in deficit.

Geldmacher said: “There is currently almost no mining of raw bauxite in the Xiaoyi area of Shanxi. According to our information this is due to a number of accidents that have occurred in underground mining over the last years... The government has put a ban on underground mining which we understand might last until Q4 2009. Whatever excess inventory might exist [at present] will likely disappear.”

One market commentator explained: “Because of the continuing uncertain outlook for bauxite usage at these prices, and the uncertainty of the export system, no one dares invest in Chinese bauxite at a mining level. Further, since the export licenses are allocated proportionately to myriad small companies, it makes it impossible for any exporter to plan the year ahead – either in price or volume.”

Geldmacher continued: “China has very distinctly assumed the position of raw material consumer instead of being a supplier to the rest of the world’s industries.”

“It seems clear that the export politics will remain very restrictive due to the need for China’s own consumption, and that bauxite – like many other Chinese raw materials – has discontinued being the cheap and unlimited source for the world markets,” he said.

Now that China has stalled the H2 2009 export quota, shortages of non-met. grades (and in particular, refractory bauxite) will only become more acute. But there are other sources of bauxite.

 World bauxite production, 2008
 
Country Production (‘000s tpa)
Australia 63,000
Bosnia and Herzegovina Mar-06
Brazil Jun-72
China 32,000
Dominican Republic 500
Ghana 840
Greece 2,220
Guinea 13-Apr
Guyana 1,600
Hungary 546
India 20,000
Indonesia 1,250
Iran 500
Jamaica 15,000
Kazakhstan 4,800
Malaysia 80
Montenegro 650
Mozambique 11
Pakistan 8
Russia 6,400
Sierra Leone 1,170
Suriname 4,500
Tanzania 5
Turkey 780
USA -
Venezuela 5,900
Vietnam 30
Total 205,590*
 *estimated
Source: US Geological Survey, Bauxite and Alumina, 2009 Mineral Commodity Summary
Guyana – old & new sources

Guyana has a long history of bauxite production and is home to significant deposits of cement, chemical, metallurgical and refractory grades. Alcoa Inc. first exploited met-grade deposits in Linden in 1917, while the well-known Refractory A-grade Super Calcined (RASC) grade was discovered in Guyana in 1938.

Once the leading producer of RASC, Guyana’s position was replaced by low cost grades from China during the 1980s. But now the country is experiencing something of a revival.

China-based, privately owned, Bosai Minerals Group, acquired Guyanese bauxite miner Omai Bawtife Minins Inc. in December 2006 – which saw the only major source of refractory bauxite outside China come under Chinese ownership.

Bosai produces met-grade alumina, aluminium, RASC grade calcined bauxite and other minerals, under subsidiary Bosai Minerals Group (Guyana). The group has a 600,000 tpa calcined bauxite capacity; however, in April the group cut production by 30%, owing to slowing demand (see IM May ’09, p.9).

Despite slowing consumption, refractory bauxite is still a valued commodity which – thanks to a lack of mining and exports from China – is becoming increasingly scarce. It is rather timely, then, that a new source of RASC grade bauxite may soon be on the scene, in the form of company First Bauxite Corp. (formerly Academy Ventures Inc.), headquartered in Vancouver.

First Bauxite owns three bauxite assets in Guyana – Bonasika, Essequibo, and Waratilla-Cartwright – which comprise deposits of cement, chemical, metallurgical, and refractory bauxite. The company is in pre-production and recently entered into a financing agreement with Pacific Road Resources Funds to secure funding of around $27.3m.

Hilbert Shields, chief executive officer and director of First Bauxite, told IM: “We are currently sonic drilling, conducting ore beneficiation and calcining testing, doing market studies and establishing contact with potential customers. We also have a number of engineering consultants on board, and we are sourcing and costing mining, washplant and calcining equipment.”

Shields confirmed that First Bauxite will primarily be targeting refractory grade production: “There are not many significant deposits waiting to be developed that have our high alumina, low iron, and low alkalis bauxite. First Bauxite will be a new Canadian producer but it will be [supplying] from a well known and recognised, high quality bauxite.”

Possible RASC plant capacity is yet to be determined, although Shields indicated that production figures will be better known when pre-feasibility studies are complete. Although First Bauxite will initially be targeting refractories, Shields also confirmed that the company will be looking into supplying the abrasives and proppants market.

Regarding the current bauxite market, Shields was frank: “The demand for metallurgical bauxite has taken a beating and a number of mines have cut back production and rationalised costs.”

“Given that most of the bauxite in the world is produced for alumina and captive, the future for bauxite is directly linked to that of aluminium. In my opinion there will be a significant time lag in bauxite recovery behind that of aluminium and then alumina.”

Considering the many challenges that the bauxite market currently faces, there is some industry speculation from the non-met. sector as to how economically viable the mineral is.

 World alumina production, 2007
 
Country Production (‘000s tpa)
Australia 18,844
Azerbaijan Jul-04
Bosnia and Herzegovina Dec-04
Brazil 6,890
Canada 1,220
China 19,500
France 200
Germany 30-Apr
Greece 750
Guinea 610
Hungary 270
India 2,900
Iran 250
Ireland 1,100
Italy 1,327
Jamaica 3,941
Japan 330
Kazakhstan 1,556
Montenegro 240
Romania 23
Russia 3,300
Slovakia 160
Slovenia 30
Spain 1,400
Suriname 2,200
Turkey 160
Ukraine 1,700
UK 27
USA 3,900
Venezuela 1,900
Total 76,113
 Source: US Geological Survey, Bauxite and Alumina, 2007 minerals yearbook
Bauxite alternatives

In refractory applications, bauxite is primarily used in the production of refractory bricks and monolithics for general heat containment, and has a maximum service temperature of about 1,650°C. Its alumina content is below that of BFA, white fused alumina and tabular alumina, but above that of other alumino-silicate minerals such as andalusite, chamottes and flintclay, and mullite.

However, owing to high bauxite costs and tight supply, both these material groups are being evaluated as potential substitutes for bauxite in specific applications.

Despite their lower alumina content, andalusitead and mullite are able to perform to the same service temperature as bauxite – 1,650°C. Additionally, the price/performance ratio in many refractory applications is currently favourable for mullite versus Chinese bauxite.

Cofermin, which in many parts of the world is the exclusive sales agent for South African miner Andalusite Resources Pty Ltd, told IM: “We have seen a strong increase in demand for andalusite. For many applications in refractories, andalusite is simply a better raw material than bauxite.”

Geldmacher said: “During the last two years the bauxite prices were and are today substantially higher than the prices for andalusite. Andalusite Resources recognises the trend of increasing andalusite demand in the future... and has therefore completed plans to increase production capacity substantially if the market so demands.”

Andalusite is also experiencing tight supply, but its availability is more reliable than that of bauxite and there is no local governmental interference.

Likewise, the availability of chamottes, flintclay and mullite is currently very good. Bernd Durstberger, head of Imerys’ Minerals for Refractories division, revealed at IM’s 15th Bauxite and Alumina Seminar that the group recently invested in its refractory minerals division to raise chamottes and mullite capacity to 1.23m. tpa.

Regarding these minerals, Durstberger concluded: “No supply issues are foreseeable and [there is] good opportunity for refractory producers to switch over from bauxite and obtain long-term supply and quality security.”

Thus while refractory grade bauxite continues to be monopolised by China (and China-owned companies), it will remain short in supply and highly priced. The situation seems to be paving the way for other alumino-silicate minerals to encroach on bauxite’s share of the refractory market.

Non-met. bauxite supply highlights

Brazil: The only remaining producer of calcined grades is Mineração Curimbaba Ltda., which mines around 700,000 tpa of bauxite. Mineração’s main grades are abrasive grade calcined bauxite for brown fused alumina (BFA) and proppants. Until recently the company’s bauxite was either consumed internally to manufacture its own range of proppants, or diverted to sister company and fused minerals producer, Elfusa.

Greece: The largest producer of bauxite in Europe is Greek minerals group S&B Industrial Minerals SA. S&B produces a wide range of non-met. grades, and also trades calcined bauxites, high quality chamottes and brown fused alumina, through subsidiary Otavi Minerals.

Guinea: It used to be a significant supplier of abrasive grade calcined bauxite, but now Guinea appears to be mostly geared towards metallurgical bauxite developments. The country has large bauxite resources and development projects for integrated bauxite and alumina operations.

Turkey: Relative newcomer Demireller Mining Ltd, which formed in 2002, mines bauxite and magnesite in the Taurus Mountains of south-west Turkey. The company produced 500,000 tonnes of bauxite in 2008, including grades suitable for abrasives, alumina, calcium aluminous cement (CAC), Portland cement, and slag conditioning.

Also new to the market is Istanbul-based Albuck Mining, which began bauxite exploration near Mugla, south-west Turkey, in 2007. Albuck, a joint-venture between the German Buck family and two Turkish families, produced 200,000 tonnes of non-met. bauxite in 2008, and is eyeing 350,000 tpa by 2012 (see IM May ’09, p.9). Albuck produces diasporic bauxite for CAC and Portland cement, and bauxite for slag conditioning.