Bauxite, fused-alumina market in supply limbo in Q4

By Davide Ghilotti
Published: Thursday, 20 December 2018

The spreads in the bauxite market have been widening, while concerns over China's 2019 supply flow increase and keep brown-fused alumina (BFA) and white-fused alumina (WFA) prices stable.

The market for calcined bauxite and fused alumina remained in a state of limbo at the beginning of the fourth quarter due to a continued lack of clarity over the extent of supply issues in China.

Market participants are facing hard questions about the continuity of supply from China amid a slowdown in demand from consumers in Europe and other areas.

Limited availability remains an ever-present problem in that it is proving difficult to quantify, resulting in wider spreads on some market prices - particularly for bauxite - while other grades remain firm or adjust in line with slow trading.

Fastmarkets IM’s price assessment for calcined bauxite, 85%, was $410-430 per tonne fob China on Thursday November 15.

Meanwhile, the Fastmarkets IM price assessment of calcined bauxite, 86%, stood at $430-450 per tonne fob China on November 15, nudging down from $435-450 per tonne earlier.

Finally, the Fastmarkets IM price assessment for calcined bauxite, 87% at $450-480 per tonne fob China remained unchanged, while the price of calcined bauxite, 88%, held at $490-500 per tonne fob China, also unchanged from the previous assessment. 

Most data points collected would suggest the spreads are widening, as in the case of the 85% and 86% prices, which are testimony to the lack of clarity in the industry at present.

"You hear numbers that are all over the place right now," a consumer said.

Limited availability

In terms of availability, most market participants across the supply chain have told Fastmarkets IM there are only limited volumes of both calcined bauxite and fused alumina, largely as a consequence of the latest series of temporary closures and restrictions that mining operations and processing plants faced in August-September in China’s Shanxi and Henan provinces.

Shanxi is the production hub for bauxite, while Henan is known for fused alumina.

With kilns across Shanxi either shut or operating at reduced capacity in the August-September period as part of the government’s ongoing crackdown on pollution, new production of calcined bauxite has been low.

"Under normal conditions, the market would need about 2.5-3.0 million tonnes of bauxite in a standard year, and 1 million tonnes of BFA [brown-fused alumina]," one seller said. "At these production rates, I would be surprised if output were more than half of that."

After covering domestic demand, the diminished bauxite output meant lower availability for the export market, as well as reduced supplies of bauxite feedstock to producers of brown-fused alumina in Henan. Together with Henan’s own closures, temporary or otherwise (some Fastmarkets IM sources estimated that as much as 50% of producers in Henan are currently not operating), this has slashed BFA production in the province.

"BFA output has been seriously down," one market source said.

While some volumes of bauxite have been shipped from Guizhou province to feed local alumina smelters in Henan, the amounts have been "negligible" compared with the standard volumes from Shanxi, which is the larger producer.

"It’s not looking good," one seller said. "I know we’ve been saying this for months, but it’s hard to see how any of this could improve in the near term."

Slow demand

When it comes to consumers, some sources point to what they described as a disconnect between this situation in China and the supposedly "relaxed" attitudes of the buyers.

"I don’t think many users are really aware of the potential long-term effect of what is happening in China right now," one importer said.

In the words of a European distributor, "We keep hearing about the closures in China and we do believe that volumes are lower. But if you ask for an offer, you will always get a few [and] that perpetuates the confusion."

Most market participants reckon that all available material in the past two weeks has come mainly from existing stocks in China, with new production accounting for only a minor amount.

Meanwhile, demand is currently low across most parts of Europe because major buyers are said to be covered for the rest of this year and the first weeks of 2019.

"Most of my customers have at least a six-month coverage ahead at this point," a seller said.

Quality issues

A number of market participants told Fastmarkets IM there may be quality issues with the available material - including off-spec material being labelled as a certain purity although the actual grade may be lower, or a product with high moisture or high impurities, such as too-high silicon or iron content.

Additionally, at least three market participants said some blending may be taking place, specifically for bauxite.

"When the perception is that availability is limited, you will always have those that take some leftover stock [and] blend it with some new volumes of lower-grade stuff from a few places," one trader said, although he added that this tends to happen with small cargoes.

Air quality in winter

As for China, the reduction in supply is likely to persist due to Beijing’s environmental efforts.

The crackdown on pollution from heavy industry, and the government’s environmental focus looks set to continue as the pollution indicators for industrialized areas remain high.

The air quality index (AQI) for Luoyang, one of the main cities in Henan province, stood at 139, or "unhealthy", on October 16, while in Yangquan, Shanxi province, the AQI was at 170, also classified as "unhealthy".

Both indices showed breathable levels of fine particles (such as PM2.5 and PM10) at dangerous levels throughout most of the day and Beijing has made it clear time and again over the past two years that curbing industry pollution in local environments is a government priority.

Pollution levels in winter are normally higher than in the summer months due to the worsening weather conditions and lower temperatures. 

This year, for the second consecutive year, the government is imposing a series of restrictions on industrial operations in key provinces for mineral production, including Shandong, Liaoning, Shanxi, Henan and others. Last year, this meant almost no production between mid-November and mid-March.

"With winter closures about to start, and most operations running at low capacity in Shanxi and Henan, the availability of [minerals including] bauxite and BFA is going to get even tighter in the coming months," one supplier said. "Winter is coming."