CMPs new bauxite mine at Xiuwen, Guizhou
which has proven reserves of 3m tonnes. Open
pit mining plus a single adit will initially be used
to produce 100-200,000 tpa of non-met. bauxite.
There is a general misconception that Chinese non-metallurgical
grade bauxite output is a separate and specific mining industry
to that of metallurgical bauxite.
This is not the case: mining of
bauxite in China is completely dominated by the production of
bauxite for smelter grade alumina.
As is well documented, Chinese
bauxite production for metallurgical purposes has massively
increased since the beginning of the new millennium.
In 2000, domestic production of
metallurgical grade bauxite was approximately twice the
production of non-met., the former being about 8m tonnes and
the latter approximately 4m tonnes.
During the past 11 years non-met.
production has grown only marginally to 5m tonnes, whereas
metallurgical bauxite production has increased to upwards of
The drivers of this change have
also been the architect of the current industry structure.
Government policy places bauxite under the aluminium business,
which is a designated strategic industry with a
very strong politically empowered national champion, China
Aluminium Co. (Chalco).
Pre-2003, there were a very large
number of very small bauxite mines, mainly village, district,
or family run. These enterprises mined on a very rudimentary
scale, mainly retrieving high-grade raw bauxite from shallow
underground mining and small open pits.
However in the period 2000-2003,
owing to the Chinese policy of developing the aluminium
business and its national champions, the legal right to mine
bauxite was almost exclusively allocated to Chinese domestic
smelter grade alumina producers and is now dominated and
effectively controlled by Chalco.
Even those bauxite reserves which
are not held by Chalco are mostly held by other government
owned or quasi-government owned domestic aluminium and power
Today an industry comprising over
100 large scale legal mines, 200 alumina refineries, and 169
primary aluminium smelters, is administrated by over 231
government departments, one of which described the domestic
bauxite reserve situation as follows.
Past times: examples of traditional shaft and round
bauxite kilns operating in Shanxi province during the
1990s, many have since closed under recent government
Chinese bauxite reserves
Shanxi provinces bauxite and kaolin reserves total 1.5bn
tonnes and are the best quality and largest in China.
Shanxis metallurgical grade
bauxite reserves are conservatively estimated at 940m tonnes,
and non-metallurgical grade bauxite 594m tonnes.
Guizhou province hosts bauxite
reserves of about 436m tonnes, with met grade bauxite 387m
tonnes and non-metallurgical grade at least 49m tonnes.
High quality bauxite reserves are
mainly distributed in Qingzhen, Xiuwen, Zunyi, Huangping,
districts of Guizhou.
Henan province has over 660m tonnes
of bauxite reserves made up 376m tonnes metallurgical and 116m
tonnes of abrasive/refractory grade bauxite.
Geographically, Shanxi and Henan
account for 44% of Chinas bauxite reserves and
approximately the same percentage of domestic bauxite
While there are some private groups
producing metallurgical grade alumina and operating bauxite
mines, their output relative to the state sector is
CMPs rotary bauxite kiln at Jiexiu, Shanxi.
Chinese bauxite consumption
Total Chinese bauxite consumption of all grades is estimated at
77m tpa, of which 45m tpa tonnes is imported.
Estimates of company domestic
consumption indicate that Chalco dominates with (directly and
indirectly) some 70% of total usage.
The next five consumers, plus
Chalco, account for over 93% of Chinas total bauxite
Since in Shandong, Shandong Xinfa
Aluminium Group and Weiqiao Aluminium, two of the leading
smelter grade alumina producers, almost exclusively use
imported bauxite, this further demonstrates how very little
bauxite production is in the hands of other entities.
There are some users in central
China, such as: Shanxi Luneng Jinbei Aluminium (state owned),
Coalmine Aluminium Sanmenxia (foreign owned), Qinyuan LaoAoGou,
Shanxi HeShun (both part state-owned).
Chinese non-met bauxite usage at
best accounts for 6.5% of total domestic bauxite consumption,
and exports of non-met. (refractory) bauxite are at best 1.3%
of the total Chinese domestic bauxite usage, consequently
government policy concentrates on the needs of Chalco and the
Limited non-met. sources
Part and parcel of the allocation of Chinese mining rights to
the state aluminium sector has been a parallel legislative
process to close down all illegal mining and private small and
Considering that China has always
been the dominant world producer of non-met. bauxite, this
seems to be an odd state of affairs.
Technically, the low-iron,
relatively high-silica Chinese diasporic α-AlO(OH)
bauxite is most suitable for producing calcined bauxite grades
for refractory use and rather less suited to smelter grade
alumina production. Indeed, it is more expensive to produce
smelter grade alumina from diaspore bauxite than low-silica
gibbsite or boehmite.
Generally speaking, non-met.
bauxite producers in China have been closed down, and in fact
there are only three mines which are producing bauxite
primarily targeted for the non-met. sector.
So where does Chinese non-met.
calcined bauxite come from? The three Chinese mining companies
that specifically target the non-met. sector are: Bosai
Minerals Group Co. Ltd, ChenQian, and CMP Xiuwen, all of which
are in Guizhou province.
CMP has only just purchased the
Xiuwen mine in Guizhou which has proven reserves of 3m
The official mining licence was
granted to CMP Xiuwen Mining Development in March 2011, and
open pit mining plus a single adit will initially be used to
produce 100-200,000 tpa of non-met. bauxite.
In Shanxi and Henan, there are no
legal mines producing exclusively non-met. grade bauxite. Raw
material from these provinces is gathered from a combination of
illegal mines and material appropriated from the metallurgical
It is very common to see
individuals and domestic traders at collection
points standing outside alumina refineries with signs
advertising cash payment for the purchase of high-alumina,
low-iron bauxite; incoming trucks often take a detour to see if
they can get a better price for the cargo than delivery to the
This is particularly true for those
alumina plants which are semi-integrated. These domestic
traders collect different batches of higher grade bauxite and
sell it on to processors and calciners through a web of
This is one of the main reasons why
non-met. grade bauxite feedstocks have become so expensive
since 2003, and also why the quality has become so variable
while at the same time the average quality has fallen so
This supply chain has little
ability to control quality, or grade the bauxite, and the
reality is that it can only collect what is available as
opposed to specifically mining what is required.
Hence the recently increasing
premium of higher grades over average material. With the
exception of the few dedicated producers, the entire domestic
and export supply markets follow this regime.
Impact on prices and exports
Consequently, non-met. bauxite has absolutely no pricing power
whatsoever, and prices are defined by the metallurgical sector,
as is the supply and availability of the product.
Prices of metallurgical grade
bauxite are themselves defined by domestic mining costs and
competition from imports.
Since 2005, the cost-benefit
analysis has moved in favour of imported bauxite especially in
Shandong - a mere 2m tonnes imported in 2005 has swollen to 45m
tonnes in 2011. Domestic bauxite ex-works prices at
RMB300($47.5)/t are now more expensive than average to imported
bauxite (mainly from Indonesia) CIF prices at
In fact the sea freight to China
from Indonesia is less than the internal Chinese transportation
cost from Shanxi and Henan to Shandong.
Moreover, imported bauxite is much
easier and more cheaply converted to smelter grade alumina as
it is mostly low-silica gibbsite or boehmite.
Chinese calcined bauxite plants and
brown fused alumina (BFA) plants, ie. for processing non-met.
bauxite and alumina grades, are fed by domestic traders and buy
on spot prices only.
Domestic prices for calcined
bauxite are set by domestic inflationary pressures,
particularly energy and transport costs; domestic energy costs
have been continually rising in recent years despite massive
increases in capacity.
Price changes can be immediate and
dramatic depending on the supply and demand situation for the
metallurgical side and stock availability.
Because the higher alumina
containing ore is a very small fraction of the total
production, the premium for higher alumina raw bauxite has
grown dramatically in recent years - prices ex-mine central
China are approximately:
Raw bauxite, minimum 76%
Al2O3, (88% Al2O3
after calcining) RMB1,000($158.3)/t
Raw bauxite, minimum 73%
Al2O3, (86% Al2O3
after calcining) RMB700($110.8)/t
Raw bauxite, minimum 70%
Al2O3, (83% Al2O3
after calcining) RMB400($63.3)/t
Raw bauxite, minimum 55%
Al2O3, only for metallurgical use
For the mineral export market (as
is well documented), the government has put in place an export
licence quota system to discourage and limit exports for
calcined bauxite, but has recently lost the World Trade
Organization (WTO) case in defence of this system.
With estimated non-met. bauxite
exports in 2011 of <800,000 tonnes, compared to
metallurgical domestic production of 32m tonnes, the stated
justification of this system (to conserve mineral resources and
limit environmental damage) seems somewhat disingenuous.
Those companies involved in
exporting bauxite, with two exceptions, are intermediaries and
do not themselves own legal bauxite mines.
Outlook for calcined bauxite exports
Under the current supply chain, none of the intermediary
traders supplying the raw bauxite to the Chinese calciners and
BFA plants are VAT registered. This means the 17% VAT is in
fact a pure sales cost, because it cannot be deducted from VAT
charged on the sales of the BFA or calcined bauxite.
This is critical for exports, as
currently the VAT is charged on top of the FOB price, plus the
export licence cost (RMB200($32.5)/t), which adds up to a
tremendous premium of export prices over domestic prices, with
the difference being transferred to Government coffers.
Therefore it is likely that after
the loss of the WTO case, while it is widely expected that the
export licence system will be scrapped, it remains to be seen
what will replace it.
What is most unlikely is that it
will become a free-for-all as the government collects
significant VAT and export licence income at the moment from
mineral exports (not just bauxite).
What is most likely is that a much
tighter regulated system of mining rights, mining taxes, and
resource taxes will sooner (or later) be implemented - much
like what is going on in the bauxite industry in Indonesia.
At the same time, industry
involvement will necessitate VAT registration and payment of
taxes. If, as expected, this does replace the current system,
then one would expect the number of suppliers to be reduced
dramatically and only the strongest to survive.
Contributor: James Devlin is managing director of CMP
Sales Europe, London UK.