Supply Situation Report: Chinese refractory bauxite supply under scrutiny

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Published: Tuesday, 28 February 2012

WTO rejects China’s appeal; Licence and quota system could be cancelled; New sources in Guyana, Russia eyed; Refractory bauxite alternatives highlighted

Alison Saxby

SUPPLY SECURITY


There is a great deal of bauxite produced worldwide; an estimated 210m tonnes was extracted in 2011. However, in terms of grades suitable for refractory manufacture, there are relatively few deposits and producers. This is because there are stringent specifications attached to refractory grade material. Iron oxide levels must be lower than 2.5%, compared with ten times that for metallurgical grades, and the alkali content has to be minimal. In addition, the alumina content of the ore must be over 60%, which is required to reach at least 87% after calcination.

Deposits which can satisfy these requirements are not widespread, hence the relative scarcity of refractory grade bauxite sources.

Refractory bauxite production and international trade is dominated by Chinese supply, and currently Chinese ownership. Figure 1 shows the relative production of key supplying countries, with China representing over three quarters of world production. Other countries such as India, Russia and Brazil supply material, but this is almost entirely for their own domestic requirements. The concentration of supply from so few countries to the international market has been a concern for buyers for a while.

In 2011, Chinese bauxite exports were 650,000 tonnes, which was lower than the 2010 figure by 200,000 tonnes. Refractory grade bauxite is exported from Guyana, but China accounts for the majority of global trade.

Chinese production and exports of refractory bauxite have been affected by a number of factors over the last five to ten years, which have changed the shape of the industry. With such a large market share, events in China can cause repercussions throughout the marketplace.

Growth in Chinese domestic demand for calcined bauxite, and additionally metallurgical grade bauxite, has put pressure on the supply chain. At the same time, restrictions have been placed on mining and calcining operations, for both environmental reasons and to preserve depleting resources. This has meant a squeeze on its domestic resources, and China is now the largest importer of metallurgical bauxite in the world, importing some 30m tonnes in 2010 - and this figure is estimated to have climbed even higher in 2011.

One major trend has been consolidation of both suppliers and exporters in China over the last ten years, from over 50 producers to around 15 today. The major producers are shown in Table 1. However, the ban on refractory grade bauxite mining in 2011 in Shanxi province meant that official refractory bauxite production was in the hands of even fewer players, for a while, mainly those based in Guizhou.

Another major factor which has affected the non-met. bauxite industry is the implementation of Chinese export trade policies and fiscal policies, both from central and provincial governments. This means that the prices and availability of Chinese bauxite are not fully market driven; the effect that these measures have had on prices are discussed further below.

In Guyana, Bosai Minerals Group produces about 250,000 tpa of refractory and chemical grade bauxite from its East Montgomery and Montgomery North mines. Bosai is the producer of refractory grade ‘A’ super-calcined bauxite (RASC), which is considered the industry standard for refractory brick production. Output from the mine was 248,489 tonnes in 2010, slightly lower, by 0.3%, than in 2009.

There are reports that Bosai plans to invest $100m over the next five years to expand the mine capacity to increase bauxite production to 2m tpa, and then invest further to build a 1m tpa alumina refinery and 500,000 tpa electrolytic aluminium smelter in Guyana. However, this expansion will produce metallurgical grade bauxite, rather than increasing supply of refractory grades.

The main refractory grade bauxite producer in Russia is Severo-Onezhsky Bauxite Mine (SOBR). The company is located in the Arkhangelsk region and mines the Iksinkoe deposit. SOBR mainly produces refractory and cement grade bauxite, and also bauxites for open-hearth steel production. Refractory grade bauxite production is estimated to now be around 300-350,000 tpa, having increased from 230,000 tonnes in 2006.

In India, refractory grade bauxite production is used in the domestic market, and this is supplemented by imports. Total production in FY2009-2010 of refractory grades was 200,312 tonnes. Refractory grade bauxite represents only around 1% of all bauxite mined in India and is mostly sourced from Gujarat state. Important suppliers of refractory grade include Ashapura Minechem, Bombay Minerals, Gujarat Development and Orient Abrasives.

In Brazil, Mineracao Curimbaba produces calcined bauxite mainly serving the abrasives and proppants markets, but also supplies some refractory grade material.





New projects

Two new projects could ease the supply pressure for refractory grade bauxite in the short-term. In Guyana, a new source of refractory grade bauxite is being developed by First Bauxite Corp., which is conducting a definitive feasibility study for two projects based on the Bonasika and Waratilla deposits.

The company is aiming to bring its Bonasika project into production by the end of 2012 with construction at the site scheduled to start in late 2011. Total investment in the projects will be $161m.

Under the updated feasibility study the mine will operate at 298,500 tpa of dry raw bauxite, and a wash plant will produce “an engineered bauxite feed” at a production rate of 162,000 tpa. This will be fed to two vertical pressurised shaft kilns at the sintering plant, which will produce 100,000 tpa of high quality calcined refractory grade bauxite. The sintered bauxite finished product will be marketed under the registered trademark GUYSIN¨.

Mining will begin at the Bonasika 7 deposit, which has an anticipated mine life of 22 years. The wash plant and sinter plant will be located at Sand Hills, on the west bank of the Demerara River. The deposit is located 26km from a river, and 45km upstream from the capital, Georgetown.

In 2011, Russia’s UC Rusal announced a project to produce a low-iron bauxite or refractory grade bauxite from the Republic of Komi through its subsidiary, Timan Bauxite. The bauxite will contain less than 4% Fe2O3 in calcined material. Production is also scheduled to begin in 2012 with an initial output of 90,000 tonnes. Full production of 250,000 tpa is expected to be reached in 2013.

The bauxite in Komi will be extracted by open-cut mining at the Middle Timan bauxite deposit, and preparatory work at the new mine was being carried out in 2011 to enable production in 2012. This project is a departure for the current focus of the mine, which produces 1.9m tpa of metallurgical grade ore, and means that much of the infrastructure is already in place.

According to the company, it already has a number of agreements with prospective buyers, although Rusal is considering calcination of the bauxite at its Boksitogorsk alumina refinery, Leningrad Oblast, for direct use in the refractories industry.





MARKET DEMAND

The refractories industry is the principal market for refractory bauxite, which is split into several sectors including iron and steel, cement, glass, ceramics, and non-ferrous metals amongst others. The most important of these for bauxite is the steel industry, which takes around 70% of world refractory grade bauxite demand.

Total consumption of refractory grade bauxite has been declining. In 2000, world consumption levels of refractory bauxite, excluding China were close to 2m tpa. By 2007, this had fallen to 1.2m tpa and in 2010 to an estimated 0.95m tpa. This explains in part why some of the factors impacting Chinese supply have not had more of an effect on global trade.

The decline in consumption has been due in part to technological changes, which have reduced the consumption of refractories per tonne of steel produced, and an increase in alternative alumina sources. When the price of refractory grade bauxite began to rise steeply, alternative alumina sources became more viable.

This completes a circle, reversing a trend from 20 years ago when cheaper bauxite stepped in and replaced the alternative alumina-silicate sources in refractories. Substitutes such as andalusite, mullite, fused alumina, and recycled materials are now eating into bauxite’s refractory market share.

There has been increasing demand for andalusite, and producers in Peru, South Africa and China are lifting production levels to meet the rising demand, while a new producer in Spain is expected to begin production this year.

It is relatively simple to switch to andalusite from refractory bauxite. However, although there will be further substitution in some select areas, a complete replacement of bauxite is not likely to happen at the moment, especially in large-volume applications.

There has also been a production shift so that refractories are now being produced in volume in China rather than Europe and North America, which has reduced the requirement for refractory grade bauxite in the west. Consumption in China has been increasing along with growth in alumina refractory output to service expanding domestic iron and steel production.

In 2011, China accounted for 46% of world steel output of 1.53bn tonnes, an increase of 9% over 2010. Refractory production has increased to keep pace and grown from an estimated 14.8m tonnes in 2003 to 28m tonnes in 2010, compared with an estimated world total of 39m tonnes in 2010.

At the end of 2011, and early in 2012, demand for refractory bauxite is weak from overseas buyers for Chinese material. In the second half of 2011, the financial uncertainty in Europe and the US and the slow recovery in construction markets have conspired to create lower demand.

In particular, demand from the US and India is lower. Producers in India have turned to domestically produced bauxite, while in the US refractory producers are using other alumina sources, such as mullite.

In China, the domestic market for refractory grade bauxite fell back in 2011 under tremendous cost pressures placed on the industry, largely from higher energy costs. In Shanxi, towards the end of the year, shortages of raw bauxite were reported, and some calciners closed operations.





MARKET OUTLOOK

The major market for refractory grade bauxite is high alumina refractories used in the steel industry, particularly in China, and this will remain the case. Roskill forecasts that steel industry output will exhibit an average annual growth rate of 5.8% until 2016, which will see demand for refractories also grow.

Chinese refractory grade bauxite consumption will continue to increase, but at a slightly slower rate than growth in steel output. This is because of a continued decrease in specific refractory consumption per tonne of steel produced, especially as new refractory plants are built and old technology replaced. There will also be growth in refractory bauxite demand in other areas such as other Asian countries, India and Brazil.

PRICE TRENDS

From levels of $65-85/tonne ten years ago, Chinese refractory bauxite is now priced five times higher, at $500/tonne FOB China or over, for many grades. Chinese prices lead the way and dominate the marketplace, and will continue to do so.

International prices have been increasing gradually since 2004. Then prices for refractory grade material were around $90/tonne, which had increased to $150/tonne by 2007. By 2008 they rose further, not only on scarcity of supply but also on increasing freight and energy rates and a re-evaluation of the remimbi.

This has brought more parity in the market as prices are now more in line with what had been up to then more expensive Guyanese material. It also shows why alternative materials are now being considered.

In 2012, China’s export quotas for bauxite have been reduced to 700,000 tonnes from 830,000 tonnes in 2011, according to an announcement by China’s Ministry of Commerce (MOFCOM). This was in response to an oversupply of licences which became apparent in the last quarter of 2011. It is now likely that the government will keep the quota at this level in 2013 and beyond, even if demand increases beyond it.

However, a complaint lodged by Europe and the US with the WTO, claimed China’s trade practises were inconsistent with its WTO obligations. China argued that its export and quota policies were necessary in order to conserve its mineral resources and limit environmental damage. The WTO upheld the complaint in August last year, recommending that China brought its trade policies into line with its WTO obligations. China appealed but, at the end of January 2012, the WTO appeals panel upheld the ruling that the restrictions were unjustified (see p.8).

To date, the Chinese authorities are examining the ruling and “will continue to enhance scientific administration of resource products based on WTO rules”. Although some of the export policies may be modified, exactly how and when is not yet clear. This makes any impact on Chinese refractory bauxite exports and prices from the WTO decision difficult to predict. If China cancels its export licence system, then refractory bauxite prices could drop by around $60/tonne.

If China drops its export quota then exports of refractory grade bauxite might increase, although alternative measures (such as a domestic production quota like that now in place for fluorspar) could be established to restrict bauxite exports, therefore supporting the case for new sources of supply outside China.

Contributor:
Alison Saxby, senior consultant, Roskill Information Services