Alumina’s balancing act

By Jessica Roberts
Published: Monday, 23 August 2010

Producers juggle a delicate supply-demand balance as alumina’s end use sectors call for increasing production from a market still emerging from economic hardship

How quickly the tide turns. In less than two years the non-metallurgical grade alumina (NMGA) market has been transformed from an investment nightmare into a financial playground of acquisitions, exploration and capacity expansions (see Table 1: Supply developments).

Not all alumina producers have emerged from the recession unscathed: Germany’s leading speciality alumina producer, Almatis GmbH, only last month settled on a debt restructure proposal with parent company Dubai International Capital that will reduce its estimated $1bn. debt. Almatis is expected to file for Chapter 11 bankruptcy to facilitate the restructure.

Despite the alarming headlines, Almatis’ debt restructure will secure the group’s financial position and the bankruptcy filing will protect it from creditor actions during this process. It is understood that DIC has raised around $700m. which will be used to repay senior debt in full with interest and provide for junior creditors (see news p.17). Meanwhile, business will continue as usual.


Newly-formed fused alumina ingots stacked for
cooling. The process takes over a week to complete.


Also in the headlines was Rio Tinto Alcan’s sale of its activated aluminas plant in Brockville, Ontario to French chemicals group Axens, in August 2010. The sale (price not disclosed) comes after RTA’s completion of a “strategic review” of its North American operations.

Despite these developments, on the whole NMGA producers are beginning to loosen their belts and return to full capacity, while a raft of price increases some as much as 15% are due in Q4 this year (see panel: Alumina prices outlook). There are definite signs of long-term growth returning to the market.

“After the first signals of price increases during Q1 2010, the trend is confirmed for the end of 2010 and 2011. This is due to direct cost increases over the last period for raw materials and energy, but also the need for future investments to ensure market demand growth,” Fred Huguet, Rio Tinto Alcan’s marketing and communication director Ð Specialty Alumina Europe, explained to IM.

Of course, the catch with the NMGA market is always thus: how is the aluminium market performing?


Figure 1: Global production of primary aluminium, 2008 (‘000s tpa)



Source: US Geological Survey


Aluminium advances

The size, demand and overall health of the non-metallurgical alumina market is largely defined by two factors: demand from its end use sectors (such as refractories and flame retardants), and activity in the aluminium market as this determines consumption of metallurgical grade alumina.

When demand is poor for aluminium, NMGA markets benefit from higher availability of material and lower prices. Yet when times are good for aluminium, non-metallurgical grades suffer. Ultimately, NMGA availability is not fully market-controlled and price trends broadly follow those for aluminium (see Figures 5 and 6).

Presently aluminium prices are teetering on the lower end of the scale, with much of June and July witnessing prices below $2,000/tonne. August saw prices climb again, although for how long is uncertain analysts say there is simply too much material on the market.

Responding to these fluctuations Alcoa, a leading US aluminium producer, has announced that it will offer customers index pricing rather than contracts based on a price linked to the London Metals Exchange as its alumina sales contracts are renewed.

Looking at the global market scale, primary aluminium production is dominated by Chinese companies and China is by far the largest producer. In 2008 the country accounted for 13.2m. tonnes of production, with Russia in second producing 3.8m. tonnes (Figure 1).

Until 2008 China’s aluminium business saw unprecedented growth, occurring on the back of historically unusual (and unsustainable) high alumina and aluminium prices.

Record prices in mid-2008, approaching $3,400/tonne, spurred Chinese smelters that were already churning out vast quantities of material to produce more aluminium; flooding the market at a time when the recession meant that aluminium consumption was falling and efforts to idle capacity were being undertaken by producers elsewhere in the world. As stocks grew, prices fell.

This is the type of industrial overcapacity that the Chinese government is attempting to rein in, however, and recent moves by leaders in Beijing could see China’s aluminium business lose some of its power.

One of the government’s latest initiatives has been to cut the export tax rebate on more than 400 products including many ferrous and non-ferrous metals with energy-intensive and polluting industries targeted (IM 14 July 2010: China cuts export tax rebates). Crucially, as a range of these products have been subject to antidumping investigations, scrapping the rebate could soothe foreign trade relations as Chinese exports become unprofitable.

A second initiative announced last month saw the government single out 2,000 companies including 17 aluminium producers (371,000 tpa capacity) for closure. Publicly named and shamed, the companies targeted are believed to include the most inefficient and polluting operations in the country.

The companies on the government’s blacklist have been ordered to cease production at selected operations by the end of September 2010. Firms which continue to operate will face restrictions on getting loans, approval for new projects, and land access refusals. Clearly China is becoming serious about companies obeying government orders.


Figure 2: Alumina hydrate markets, 2008 (3.6m. tonnes)



Source: Ted Dickson, 2010


Figure 3: Calcined alumina markets, 2008 (2.4m. tonnes)



Source: Ted Dickson, 2010


China alumina: “Bust in five years”

Faced with tightening government controls, perhaps what Chinese companies need least is raw material shortages unfortunately, demand for NMGA is outstripping the availability of higher grades of bauxite used for its production, one Chinese-based alumina producer told IM.

Combined with tight supply is the rising cost of electricity and unfavourable currency rates from appreciation of the renminbi; all of which have created a perfect storm that has slashed the competitiveness of Chinese alumina on the global market.

Alumina from outside China is cheaper than domestic production because of bauxite quality and energy costs, with renminbi appreciation making it worse,” the producer told IM. “Many domestic alumina producers will go bust in the next five years many already have.”

“The price of non-metallurgical alumina is continuously rising, little by little, because of the limited resources and increasing electricity prices. Energy costs will continue to go up as the electricity usage of domestic consumers grows and competes with industry,” the source explained.

Falling US dollar prices for aluminium have also compounded the supply challenges in the NMGA market.

“Since there is limited production of alumina raw materials and large consumption in the domestic market, China’s policy is to try to keep the materials for domestic market and future use,” another Chinese alumina processor explained.

“On the other hand, since there are so many mining disasters and environmental issues, the Chinese government has increased tax, quotas and the cost of mining, to control the exportation of alumina. The prices for alumina have been stable during the financial crisis, but in the end the US dollar price of aluminium is what matters,” the company commented.


Figure 4: Regional chemical alumina production



Source: Ted Dickson, 2010


Market movements

China’s falling competitiveness in the global NMGA market is a welcome development for producers and consumers elsewhere in the world. In a recent IM online poll, 49% of participants believed that China’s restriction of raw material exports was a “great opportunity” for their business. Meanwhile, less than a quarter thought the export restrictions were “disastrous” and only 16% thought the country’s export policies were cause for concern.

For alumina producers in the rest of the world, the Chinese government could not have timed its new export initiatives better. NMGA’s principal markets are on the rebound and many are heading for definite growth.

The NMGA market is estimated at about 5.5-5.8m. tpa, with about 2.8m. tpa of this defined as “speciality” or “premium” alumina grades. Of this premium section, the main product is calcined alumina, which is largely consumed in the refractories and ceramics industries. Alumina aggregates such as tabular alumina and white fused alumina are the second largest product group of the speciality grades, with end markets in refractories and abrasives, while the third major speciality product line is hydrates for flame retardants and fillers.

Alumina is strongly tied to refractories consumption and thus it follows the demand trends seen in aluminium, glass and steel markets.

Barbara Steuler, marketing director for Almatis, told IM: “During the next two years we expect the speciality alumina industry to continue to grow on average about 4-8% depending on the regions; of course China, together with some of the other developing countries, will continue to grow at the higher end of the range. Steel growth for 2011 is currently projected at a global average of 5% driving the consumption of calcined alumina, tabular alumina and white fused alumina for the refractory industry.”

Almatis also expects further growth for the NMGA market owing to demand for higher performance synthetic alumina products in refractory applications. This has arisen because of two primary factors: changing technology, and high prices for alternative alumina aggregates such as brown fused alumina.

Steuler said: “Reformulations will happen to the benefit of the higher performing synthetic alumina products.”


Figure 5: Aluminium prices (LME cash), August 2007 to August 2010, high grade 99.7%



Source: London Metals Exchange, Metal Bulletin


Refractories: changing uses

Certainly refractory mixes have seen significant change over the past few years. When signs of recession started to bite into refractory-consuming markets, refractory producers began to decrease bauxite usage to minimise the impact of the mineral’s high price tag.

As ANH Refractories’ Bill Orlandi discussed at IM’s Bauxite and Alumina seminar in 2009, product mixes were developed to contain more alumina materials, as much as 60-70%, and brands with high bauxite content lost popularity. Recycling programmes were expanded in an effort to reuse as much high-alumina material as possible.

But it is important to note that refractory product development has been evolving to high-alumina mixes since pre-recession times, evident of a longer overall trend in this market. The consumption of high-alumina and synthetic alumina materials in refractories has increased as high process demand and improved technology in steelmaking has called for higher grade alumina products.

Refractory linings have been developed, using tabular and white fused alumina, that are essentially a combination of cast and shotcrete products. The benefits of these high-alumina linings are numerous: no tear out of the old lining is necessary as users can simply shotcrete over the old lining; and the lining has a longer life thus users can buy less material.

Almatis has responded to demand in the high-alumina market with increased presence in anticipated growth regions, such as China and India. The company told IM: “We aim to continuously add capacity and capabilities to assure our presence and customer support in the growing regions.”

In terms of product growth, Almatis has seen the highest demand for tabular alumina and calcined aluminas, but, Steuler added, “many good opportunities occur also for more unique and advanced products”. With the growing steel industry in China and India, the company anticipates this trend to continue “for years to come”.


Table 1: Selected non-metallurgical alumina supply highlights

Company Product Location Comments
Alcoa World Alumina Chemicals (AWAC) calcined alumina, alumina hydrate Dak Nong province, Vietnam AWAC, a j-v between Alcoa and Alumina Ltd, signed a cooperation agreement with Vietnam National Coal-Minerals Industries Group (Vinacomin) in 2008 to conduct a joint feasibility study of the Gia Nghia bauxite mine and alumina refinery in Dak Nong, dependent on AWAC obtaining a 40% share of the project. It is understood that smelter grade alumina will make up the bulk of the estimated 600,000 tpa production.
Almatis alumina hydrate Bauxite, Arkansas, USA in August 2010 the company was given approval to enter into a debt restructure plan funded by parent company Dubai International Capital (DIC), replacing an initial debt restructure proposal by Oaktree Capital. At the time of press, Almatis is expected to file for Chapter 11 bankruptcy to provide protection against creditor action while the debt restructure process is underway. Regarding its operations, in March 2010 Almatis announced that it would close most of its speciality hydrates production unit at the Bauxite, USA plant, with calcined and tabular grades unaffected. In July this year the company celebrated 100 years in the NMGA market.
Aluchem hard burned calcined alumina Little Rock, Arkansas, USA recently opened a new $8m. calcined alumina facility to produce hard burned grades for the ceramic, glass and refractories markets. Aluchem said the plant would allow the company to grow a part of its business which had been constricted by its ability to buy calcined alumina from other producers. Little Rock capacity is expected to be 75,000 s.tpa.
Axens, Rio Tinto Alcan alumina hydrate Brockville, Ontario, Canada in August 2010 French chemicals group Axens announced its purchase of the alumina hydrate plant in Brockville from Rio Tinto Alcan, following RTA’s completion of a “strategic review”. RTA’s only North American plant is now Vaudreuil.
Exploration Orbite VSPA Inc. speciality alumina Cap-Chat, Quebec, Canada evaluating production of speciality alumina (99.99% purity) grades from an aluminous clay deposit in Quebec. Orbite has established a pilot plant with initial production at 1 tpd, expected to increase to 5-10 tpd in 2012 and 50-100 tpd in 2013-2014.
JSC Uzbekugol, JSC RUSAL VAMI (j-v) alumina, alumina cement Tashkent region, Uzbekistan a joint-venture between Uzbekistan’s coal and lignite producer, JSC Uzbekugol, and JSC RUSAL VAMI, the Russian National Aluminium-Magnesium Institute in St Petersburg, is proposing a project to produce alumina and alumina cement in Tashkent. The plans call for construction of a $900m. alumina cement plant with a 500,000 tpa alumina capacity and 7m. tpa alumina cement. Plant completion scheduled for 2015.
MAL Hungarian Aluminum calcined alumina Niksic, Montenegro in July 2008 MAL acquired 10-year concession rights for exploration and extraction of a bauxite deposit in Niksic covering 17.4 km2. MAL expects to begin extraction in 2010 once drilling has been completed on the property, with the Niksic bauxite targeted to supply its alumina refinery in Ajka. MAL is aiming to supply the Ajka refinery with solely internally-produced bauxite. In March last year the company cut calcined alumina production by 15-20% citing conditions in the ceramics and refractories markets.
Nabaltec calcium aluminium hydrate carbonate Schwandorf, Germany recently opened a new 10,000 tpa production site for the manufacture of mineral co-stabiliser ACTILOX, an alumina hydrate filler used to stabilise PVC. The total investment for the site was €18m., one of the single largest in Nabaltec’s history.
Noranda Aluminum Holding alumina hydrate Jamaica; USA Noranda recently purchased the remaining 50% shares in the USA’s Gramercy Alumina and Jamaica’s St Ann Bauxite, from partner Century Aluminum Co. Gramercy primarily supplies smelter grade alumina, but 350,000 tpa of its 1.2m. tpa capacity is directed to NMGA markets.
PT Indonesia Chemical Alumina calcined alumina West Kalimantan province, Borneo this chemical grade alumina company is a j-v between Indonesia’s Antam (65% owner), and Japanese companies Showa Denko and Marubeni Corp. Still in the construction stage, ICA aims to produce 300,000 tpa chemical alumina. In May 2010 the WIKA Group was hired as the contractor for the Tayan alumina plant. Parent company Antam is seeking a $169m. loan to finance the project.


Ceramics

For similar reasons to refractories, ceramics saw a sharp slide in demand towards the end of 2008 which has begun to recover since the start of this year. Regional ceramics markets typically follow a country’s GDP as they are linked to industrial development and construction projects.

Almatis estimates that ceramics will grow 4-5% globally this year, but believes that markets could grow by as much as 10% depending on region.

The alumina producer sees other ceramic growth areas in markets such as environmental automotive applications, in demanding settings such as thermal power plants and mineral processing areas, and also in the electrical and electronics industries which are forecast to be slightly above GDP growth.

Hans Bogaard, sales manager alumina at Martinswerk GmbH, also sees increased demand for alumina in ceramics applications. Bogaard revealed that Martinswerk, a subsidiary of Albemarle, saw alumina sales increase 40% in H1 2010 compared to the same period in 2009.

In terms of market opportunities, Bogaard believes there is a “good chance for sales to increase in the Far East region (China, India) mainly for ceramic applications”, provided the US dollar remains strong against the euro. Challenges in the NMGA market will be related to handling increased raw material and energy prices.

Flame retardants

Another specialist market for alumina is in the field of flame retardants. Aluminium trihydrate (ATH) has gained popularity as a flame retardant filler in the cable and wire market over the last decade and market outlook appears to be good.

One of the main drivers of ATH’s increased usage is the phase-out of halogenated flame retardants in Europe and elsewhere.

“Demand is rising for the higher added-value products, especially fine precipitated ATH and reactive aluminas,” Gerhard Witzany, member of Nabaltec’s management board, told IM. “The rise in demand is worldwide, but focused in Asia.”

Witzany revealed that Nabaltec, a leading producer of ATH, has forecast an increase in demand for halogen-free flame retardants at around 7-8% a year, particularly as more countries are expected to implement environmental regulations against the use of halogenated products.

Production of flame retardant fillers is close to 1.7m. tpa, with around 60% of this comprising halogen-free fillers. Metal oxides are one of a group of four halogen-free FR fillers, and within this subgroup ATH production is estimated to be close to 700,000 tpa.

New projects

Across the board, the main challenge NMGA producers foresee in the short-term is low availability of raw materials.

Rio Tinto Alcan’s Huguet commented: “The challenge is clearly the balance between demand and supply. After strong curtailment programmes undertaken in late 2008 and 2009, producers faced a sharp increase in demand during the first two quarters of 2010.”

“This led to longer lead-times for the different types of NMGA. The key challenge for the end of 2010 will then be the sustainability of this recovery, as well as the production capacity increases,” Huguet explained.

Raw material issues are particularly affecting markets such as ceramics and refractories, which face several months of lead-time for reactive alumina.

Fortunately, the NMGA market could be boosted with additional supply from several projects that are currently in development.

PT Indonesia Chemical Alumina (PT ICA), j-v subsidiary owned by Indonesian state miner Antam (65%), and Japanese alumina producers Showa Denko and Marubeni Corp., is evaluating a 300,000 tpa calcined alumina plant in West Kalimantan province, Borneo. In May 2010 the WIKA Group was hired as a contractor for the construction of the Tayan alumina plant, which is aiming to supply Indonesian and international markets.

New capacity is also on stream in the USA following the opening of Aluchem’s hard burned calcined alumina plant in Little Rock, Arkansas. The $8m. facility has a capacity of 75,000 s.tpa and is targeting sales to the ceramics, glass and refractories markets.

Also a sign of the promising market conditions is Nabaltec’s decision to open a 10,000 tpa alumina hydrate plant in Schwandorf, Germany. The facility produces calcium aluminium hydrate carbonate filler used to stabilise PVC.

These are just a selection of the NMGA projects recently completed or under evaluation. This relatively niche industry, estimated to total almost 6m. tpa, represents a good investment option for the financial sector. In all of its primary markets demand has returned, and in some cases (ceramics and refractories) consumption is already exceeding supply. Considering also that China’s grip on the market is receding; alumina has become even more attractive to producers in the rest of the world.


Alumina at a glance

The non-metallurgical grade alumina (NMGA) market is estimated to total about 5.5-5.8m. tpa, with about 2.8m. tpa of this defined as “speciality” or “premium” alumina grades. The remainder (and bulk) of the market is termed “commodity hydrate” and includes products such as ground white bayer and aluminium sulphate (Figure 2).

Of the premium section, the main product is calcined alumina, which is largely consumed in the refractories and ceramics industries (Figure 3). Alumina aggregates such as tabular alumina and white fused alumina are the second largest product group of the speciality grades, with end markets in refractories and abrasives, while the third major speciality product line is hydrates for flame retardants and fillers.

Aluminium trihydrate: produced from bauxite via the Bayer process, ATH is the starting product for all alumina derivatives. From its initial formation, ATH can undergo a series of processing steps (calcination, milling, fusion, pelletising) to create the grades discussed below.

Calcined alumina: generally manufactured by calcining ATH in rotary kilns at about 1,400ºC. A wide range of calcined alumina grades are available with varying alumina contents, crystal sizes, soda levels and morphology. Low soda grades are extensively used in electronic applications, such as spark plugs.

Tabular alumina: also termed sintered alumina, tabular alumina refers to calcined alumina with an alumina content close to 100% that has been sintered at close to the alumina fusion point (2,040ºC). Sintering forms large (50-500µ), flat tablet-shaped corundum crystals. Usually manufactured in shaft kilns.

Fused alumina: manufactured by melting at temperatures in excess of 2,000¡C. Brown fused alumina is sourced from calcined bauxite, while white fused alumina is produced from high purity calcined alumina. The grades are largely consumed in abrasives and refractories.

Alumina prices outlook

Prices for calcined and hydrated grades of alumina have remained fairly stable throughout 2009 and H1 2010 following sharp drops in late 2008 and early 2009, which occurred on the back of poor demand from end use sectors such as ceramics, refractories and flame retardants.

These trends were in contrast to the external price pressures experienced by producers, whose raw material and energy costs dictated that price increases were necessary. Because of poor market conditions, however, many intended price increases did not occur Ð and these are only now being implemented, two years later.

In many markets it is predicted that alumina prices will increase in Q4 2010, with estimations ranging 5-15%.

One European ATH producer told IM: “Price increases are scheduled for the fourth quarter to compensate last year’s price concessions and cover production cost rises. We expect prices for alumina will rise by 10Ð15% in Q4.”

Another Europe-based calcined and tabular alumina producer commented: “For H2 2010 we anticipate speciality alumina price increases in the range of 4-5%, influenced by much more stable market conditions and driven by the higher input costs which have not been passed on to the market since 2009 Ð such as feedstock costs, freight, energy and other major cost drivers.”

Industry participants have reported that the supply of speciality grade aluminas has become constrained due to an uptick in demand from the refractories industry during the past quarter, which has taken manufacturers by surprise.

Producers have not been able to bring on enough capacity in time to meet the extra demand.

“The increase in demand from the refractories industry was unexpected and has taken us by surprise to some extent,” said a US producer. “Increasing demand for feedstock alumina from the metallurgical industry has not however been an issue.”

Figure 6: Alumina price ranges, August 2008 to August 2010