The industrial minerals industry has long been
accustomed to seeing the markets for brown and white fused
alumina (BFA, WFA) moving on largely parallel tracks, rising
and falling based on common influences affecting the dynamics
of both sectors. But diverging elements have been at work over
the past year, resulting in a gradual breakdown of that former
pattern and instead supporting independent directions for BFA
Historically, there was a substantial and
ever-present price differential between cheaper brown fused and
more expensive white fused alumina out of China, the largest
producer of both mineral commodities.
While the spread between the two has been quite
elastic over the years, based on supply and demand patterns,
WFA has commonly traded at a premium of $50-100 per tonne over
BFA. This was due to the specifications of the material
– WFA has higher purity than BFA – as well as
processing, with WFA produced out of smelter-grade alumina
(SGA) while BFA uses calcined bauxite as feedstock.
The years went by with the two markets moving
mostly in parallel, although at an arm’s length
from each other – until recently, when this
relationship rapidly fell apart.
In December-January 2019, Fastmarkets was
assessing the price of refractory-grade BFA around $780-800 per
tonne fob China. At that time, the price of refractory-grade
WFA was equivalent to $830-850 per tonne, netted back to an fob
Fastmarkets assesses the price of WFA on a cif
Europe basis and in euros, to take into account non-Chinese
producers. That assessment in January 2019 was €770-840
($849-926) per tonne delivered EU port. So at the beginning of
last year, the relationship between cheaper brown and costlier
white fused alumina was still holding.
Both markets were then affected through the year
by weak performances in consuming industries, refractories and
Fast-forward to December, and
Fastmarkets’ price assessment for BFA was down to
$710-720 per tonne fob China. At the same time, quotes for WFA
were heard as low as $680-690 per tonne fob China. This means
that WFA went from a premium of $50 per tonne over BFA to a
discount of $30 per tonne in the space of 11-12 months.
The driving factor behind this fundamental change
in the fused alumina market was primarily related to the supply
dynamics affecting production of WFA and BFA, and the feedstock
on which the two materials rely.
BFA, whose global supply is controlled by China,
is manufactured by processing high-grade calcined bauxite. This
feedstock is sourced almost entirely domestically in the East
Asian country, in the mining provinces of Shanxi and Henan.
Imported metallurgical grade bauxite is unsuitable because its
Al2O3 content is far too low.
Beijing put severe restrictions on its bauxite
mining during 2019, as part of its drive to curb its
environmental effects and to limit illegal mining. The stricter
regulation of mining drastically affected the availability of
material for calcination and, in turn, the output of feedstock
to BFA plants. This added to other restrictions imposed on
calcination kilns, with many facilities unable to operate for
week-long stretches over recent months.
All told, BFA production flows have been
intermittent, and able to meet demand only because order
volumes were low throughout 2019.
Meanwhile, WFA is not derived from high-grade
bauxite, but from smelter-grade (or Bayer) alumina feedstock,
whose supply situation has been diametrically different. Bayer
alumina has been more readily available and cheaper to source
within China, owing to oversupply internationally and sluggish
domestic demand. The country had an estimated 620,000 tonnes of
alumina surplus by November last year.
Additionally, imports of metallurgical-grade
bauxite into China have been on the rise. In the first six
months of 2019, China imported 52.6 million tonnes of bauxite,
an increase of 30.2% year-on-year. Met-grade bauxite is refined
into smelter-grade alumina through the Bayer process.
Crucially, this meant that WFA producers had
relatively easy access to feedstock for their production lines,
while BFA producers struggled to source expensive, high-grade
calcined bauxite for their plants.
Decoupling to intensify
Although the price of both commodities fell by a
similar order of magnitude during 2019, the historical premium
that WFA had over BFA has been wiped out, and it now looks to
be more competitive in the eyes of users than the latter
Because of the supply patterns and lower costs,
several factories in China switched production from BFA to WFA
where possible during the third and fourth quarters of 2019, as
Fastmarkets has previously reported. This would support the
output of white fused material at the expense of brown, and
would put WFA in a better position to withstand higher demand
flows when the market improves.
With WFA more connected to imported bauxite, and
BFA instead remaining closely linked to the intermittent
availability of domestic high-grade bauxite, the decoupling of
these two markets is likely to become more marked. In the near
to medium term, the industry could see more disjointed supply
and pricing patterns governing white and brown fused alumina,
and these two markets moving along increasingly separate