A widespread shortage of raw materials and a plethora of
production issues are putting pressure on the non-metallurgical
bauxite and alumina markets at the beginning of 2018.
A drastic reduction in output throughout last year, mainly
on the back of Chinese-led restrictions to local industrial
productions, led to rapid appreciations in markets including
calcined bauxite and fused alumina.
This, and other factors, are set to play out in 2018 as
well, and are already affecting markets that are normally
governed by more stable contracting arrangements, such as
calcined alumina products or alumina hydrate. Availability is
limited and prices are moving upward.
In the fused alumina and bauxite space, what China will do
in the coming months is set, once again, to direct market
|Alunorte Hydro alumina refinery,
Norsk Hydro ASA
In the beginning was China
The country is one of the largest producers of fused alumina
(FA) and calcined bauxite, supplying refractories and abrasives
end markets. We can trace the beginning of the current shortage
now affecting several non-metallurgical bauxite and alumina
markets globally to a series of actions taken in China from
At the time, two years ago, the market looked very different
from what it is today.
The weak performance of global steel markets, and related
sluggish demand for refractories, ensured that prices for both
refractory grade bauxite and fused alumina remained weak and
supply abundant, along with that of other refractory
That being the case, the wider industry initially took
little notice of what was happening on the supply side, where
drastic changes were in the making.
China decided to bring an end to the free-for-all,
unregulated mining and industrial processing practices that
had, until then, characterized a large part of its
It did so in two ways: On the one hand, by cracking down on
illegal mining and tightening controls on permits, exercising
zero tolerance on unauthorized, unregistered operations and tax
dodging (especially VAT). In this way, it sought to achieve a
more orthodox and regulated industry, which is easier to
monitor, while also ensuring more effective collection of tax
|Refractory grade bauxite prices ($/tonne fob
On the other hand, the country enforced existing and new,
wide-reaching environmental standards that companies had to
follow to reduce their pollution footprint. The measures taken
included forcing operations that relied on coal-based energy to
switch to natural gas; installing dust control, desulfurization
and waste discharge systems, among others.
Beijing declared pollution a number one priority of
governmental action, after decades of unmonitored practices had
exacerbated contamination of the local environment. Many supply
chains were to see immediate consequences from this turn in
Bauxite and fused alumina were among the first
By the end of 2016, a number of fused alumina and
refractory-grade bauxite production facilities had been closed
for failing to meet standards. Many of these obsolete,
coal-fired plants were shut for good.
Temporary shutdowns of production started to be enforced in
Henan and Shanxi, two leading producing provinces, to reduce
high pollution levels. This was first announced by local
governors in December 2016, and set the pace for what the
sector would increasingly see the following year.
"I have worked in this industry for 20 years, but I have
never seen this massive a shutdown," a European trader told
Industrial Minerals at the time. Little did he imagine that
things were to get even stricter.
In March 2017, Henan province – the main brown
fused alumina (BFA) producing area – was placed under
severe pollution alert, with industrial electricity monitored
by the local authority to ensure emissions were
|Rio Tinto’s bauxite mining
operation in Weipa, Australia
In Shanxi, which holds the bulk of bauxite reserves,
coal-powered bauxite calcining operations were stopped for
failing to meet energy sourcing norms, while plants in Tianjin
were also affected.
By May, only a minority of plants was allowed to continue
operating in Shanxi and Guizhou, as most others did not meet
the required standards.
Other mineral sectors were affected as well. Magnesia
production in Liaoning province was slashed during inspections,
and graphite production in Shandong was also disrupted.
The clean-up efforts on the part of the government expanded
to other regions during the summer, and came to affect
virtually any industry or sector deemed polluting –
including chemical, coking, electroplating, tannery, pesticides
and lead-acid batteries.
In the run-up to two main events - the National Games of
China in Tianjin and Luoyang, Henan, in September, and the
national congress of the Communist Party in Beijing in October
- inspections intensified, further curbing output as factories
could not operate normally, running only during short windows
when allowed or between one inspection and the next.
Tianjin had its own share of trouble. Under the development
plan aiming to upgrade the port city, all processing facilities
based there had to relocate elsewhere, as was announced last
June. As a consequence, plants that could not afford the
relocation costs and equipment upgrades simply closed, taking
yet another chunk of production off the market.
|South32’s bauxite mine and
alumina refinery near Worsley,
While processing plants could not operate, restrictions to
mining were imposed. The use of explosives was severely
curtailed in mines across China, leaving miners to rely only on
mechanical extraction, with limited output. This affected
bauxite as it did magnesia, graphite and other minerals.
And so it went on until the very end of the year, and into
At the time of writing, a latest period of shutdown remains
in place in northern areas including Shanxi and, in central
China, Henan. It started in mid-November and will last until
mid-March. During this time, all local bauxite calcining kilns
are closed, with no raw material to supply brown fused alumina
Several market participants hope that the situation will
return to a more manageable level after the Chinese New Year
holiday in February. By the second quarter, the Henan shutdown
will have expired and some state-controlled suppliers of
equipment and explosives are due to return to action, although
no exhaustive details have been circulated.
With this plethora of issues, production costs have been
ticking up. Energy is, at the moment, a primary concern for
companies that are still keen to operate. Due to the mandatory
shift in demand from coal, natural gas prices are spiraling out
"The gas price today is three times what it was only a few
months ago," a Chinese producer told Industrial Minerals in
early January. "This is the leading driver of the increase in
costs. In my experience, this price will keep increasing until
the government does something about it."
The appreciation of energy costs adds to issues related to
the quality of the available bauxite ore. Due to the
restrictions at mines, what ore reaches processors is described
as having high impurity levels. This all makes for lower
quality and more expensive material supplied to market.
|Brown fused alumina price
(refractory/abrasive, $/tonne, fob China)
|Fused alumina, white, 25kg bags, CIF Europe,
The combination of mining restrictions, production shutdowns
and increasing costs has put market prices on a decisively
This has been affecting, in turn, several commodities in the
supply chain at different times. From bauxite and BFA at the
frontline of the restrictions, the appreciation spread to white
fused alumina (WFA), as well as to markets governed by more
stable contractual patterns, such as calcined alumina products
With hindsight, it can be seen how many market participants
failed to foresee the scale of the supply squeeze in China, and
its drastic consequences on prices.
Those buyers who, at the sight of the first price upticks,
decided to sit it out rather than stockpile material early on,
had to bear the brunt of their wait-and-see attitude later on,
when they could no longer delay their purchasing and had to pay
much higher prices.
Contributing to this was the widespread feeling that, as
China had done often before, this would be yet another
short-term, opportunistic spree to drive prices temporarily,
before they would return to "normal" levels. As it turned out,
this was not the case.
As mentioned, during the downturn in steel markets in 2016,
prices of several refractory minerals were weak. As of
November 2016, refractory grade bauxite 85% was trading at
$270-300 per tonne fob China. The grade had been flat for
several months up to then, owing to low demand.
The sluggish price trend continued into the second quarter
of 2017, when the inspection efforts on the part of the
government, and the clampdown on VAT dodging, gradually started
to be reflected in prices.
By mid-June, the grade had risen to $340-350 per tonne, as
availability had dramatically reduced. Further volatility
was seen in the summer months, until the grade gained a further
$100 or so, and toward the end of the year, when 85% material
was priced at $450-460 per tonne. In the year to December 2017,
the grade had appreciated in price by 60%.
Other calcined bauxite grades performed in an analogous way:
86% material rose to $470-480 per tonne fob China by year-end
from $280-300 per tonne in April 2017 (+64%); 87% grade
increased by 57% to $490-500 per tonne fob China by December;
88% grade material rose by 48% to $500-520 per tonne fob China
in the same period.
|Ship being loaded at Rio
Tinto’s Weipa bauxite operation,
Since mid-summer, availability of high purity grades -
especially 87% and 88% - was reported as extremely limited.
As its supply is very closely linked to that of bauxite, and
affected by several of the same factors, BFA prices moved
almost in parallel to those of bauxite.
In the lull of 2016, BFA refractory grade (min 95% Al2O3,
0-6mm) fell below the $600 mark, to $570-590 per tonne fob
China in mid-September.
At the time, BFA abrasive grade (min 95% Al2O3, FEPA F8-220
grit) was trading at $600-650 per tonne fob China.
Both grades ticked up gradually as the shutdowns capped
production output between the end of 2016 and the first half of
2017. This was first seen in abrasive prices, which had risen
to $700-750 per tonne by February.
The second half of the year saw a rapid appreciation pattern
for both markets, as availability worsened. By end of August,
refractory BFA rose to $700-750 per tonne, while abrasive edged
further to $780-825 per tonne. Prompted by scarcity, widespread
demand and an appreciating Chinese yuan against the US dollar,
prices exceeded a two-year high in the fourth quarter.
Into early January 2018, refractory grade BFA hit $780-800
per tonne, and abrasive grade – now reported as
extremely thin on the ground – rose further to
$870-920 per tonne.
The continuous price pressure on bauxite, and BFA
consequently, led to an appreciation of WFA, although this
market normally shows less volatility. The uptrend was also due
to a hunt for alternative materials by refractories customers.
Those who could not secure bauxite or BFA opted for WFA, where
possible, in a bid to cover their needs and secure better
Back in October 2016, refractory grade WFA was trading at
€600-650 per tonne cif Europe. The grade gained €100
on both ends by the first quarter of 2017, where it stayed for
most of the year, prior to a further appreciation in December
to €750-800 per tonne.
New year contracts are being reported as hovering around
€800 per tonne cif Europe from some suppliers, although
Industrial Minerals is aware that other suppliers are quoting
as high as €900 per tonne cif. Chinese-origin material has
appreciated the most, Industrial Minerals understands.
|Non-Ferrous Metals Alumina Index Fob
Australia $ per tonne
In focus: Alumina hydrate
In the alumina trihydrate (ATH) space, market participants
active in the United States have reported bullish driving
forces, as several suppliers are seeking to put through price
increases on 2018 contracts.
Citing higher feedstock costs, US ATH suppliers want to
capitalize on high demand and widespread price rises across
Buyers have noted aggressive offers from their suppliers to
secure a "sizeable" increase in new contract prices, they told
Industrial Minerals in January.
Industrial Minerals assessed damp alumina hydrate (57-60%
Al2O3, 5-8% moisture), at $280-300 per tonne ex-works US in
Industrial Minerals is aware of at least three sellers that
have raised ATH prices for 2018.
Back in December, US-based flame retardant materials
supplier Huber Corp said it would increase its prices of ATH
and magnesium hydroxide from January.
The increase will affect all grades of ATH and magnesium
hydroxide that Huber Engineered Materials, the division
handling these ranges, supplies. Huber cited "cost increases in
raw material, labor, packaging, regulatory compliance and
freight" as its reasons for making the price adjustments.
A second supplier serving the US will also increase its own
ATH prices next year, it told Industrial Minerals in December,
and a third supplier exporting to the country is doing the
This second seller said higher costs for smelter grade
alumina (SGA) and energy were driving prices up, as were higher
bauxite and caustic soda prices.
Buyers seem to be taking a cautious stance toward
suppliers’ announcements for the time being.
"I haven’t started actual negotiations yet due
to the rising market," one ATH buyer told Industrial Minerals
at the beginning of January, adding that he could afford to
delay his purchasing because the facility had enough stock to
run for the immediate term.
"Of course, if you don’t have stocks left and
are in need of buying, your position is much more exposed to
the price rise," he added.
On the other hand, a second buyer told Industrial Minerals
he has chosen to lock in volumes and prices for the full year
whereas, under typical conditions, he would buy on spot or on
"Normally I don’t do yearly contracts but this
time we decided to do it," he said, adding that he wanted to
counteract a period of volatility that started with the
increase in SGA prices in the second half of 2017.
The market had first expected higher prices in 2016 when two
large US production facilities, Alcoa’s Point
Comfort plant and Sherwin Alumina’s plant, both
The two sites had combined total capacity for 3.9 million
tonnes per year of alumina products although they had been
running at lower rates for some time before finally
Although sources at the time reported that "everyone"
expected price increases in ATH after the shutdowns, the market
remained stable due to a combination of weak downstream demand,
high leftover stocks following the closures and a surge in
supply from Brazil that avoided a potential shortage of
With demand from consumer markets unchanged following the
closures, inventories from the two plants that were sold as the
operations closed were sufficient to cover any immediate
short-term need from users.
Then Brazilian exports stepped into the picture. ATH
shipments from Brazil to the US soared from 65,890 tonnes in
2015 to over 241,000 tonnes the following year – a
surge of 267%. This avoided a potential shortage, and prevented
a price surge.
As for this year, doubts are rife as to how the 2018 bullish
phase will play out, with some suggesting that deals being
negotiated will be crucial in this respect.
"The duration of new contracts will determine how long the
period of high prices will last," one buyer said. "If customers
lock in long supply deals, we may be looking at a full year of
ATH trading: Brazil takes off on US
Brazilian alumina trihydrate (ATH) exports ended 2017 on a
high, with shipments reaching 844,982 tonnes in the full year,
exceeding volumes traded in the previous two years.
The performance of the Latin American producing country
confirms the uptrend in previous reporting periods, which
was supported by healthy demand in the US.
Total exports last year generated turnover of $138.98
million, according to Brazil’s customs data.
For comparison, 2017 total exports were 15% above 2016 in
volume terms of 737,179 tonnes and up 69% against 2015, when
exports were below 500,000 tonnes.
In value terms, 2017 turnover was also higher than both 2016
and 2015 by 18% and 59% respectively. December shipments of
Brazilian ATH stood at 50,802 tonnes, with a value of $9.47
The bulk of December demand originated from the US, which
stood out as the single largest buyer for the month, taking in
34,910 tonnes. The destination was followed by Argentina at
11,574 tonnes and Japan at 1,355 tonnes.
Increased buying activity in the US in December made the
country the leading importer of Brazilian ATH in 2017. Exports
to the US alone reached 379,912 tonnes last year, equivalent to
a 45% share of total trade.
Japan followed closely at 375,453 tonnes, equivalent to a
44% share. Together, the two importers accounted for almost 90%
of Brazilian shipments.
Argentina was the leading buyer in Latin America at 31,653
tonnes in 2017, followed by Mexico at 28,736 tonnes.