BFA and WFA markets decouple

By Davide Ghilotti
Published: Tuesday, 04 February 2020

The market for fused alumina has been characterized by an increasing separation of brown fused (BFA) and white fused (WFA) alumina. As these factors strengthen, the decoupling is expected to drive these markets further apart in the near term, writes Davide Ghilotti

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 and WFA.

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 China basis.

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 industrial production.

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.

Diverging dynamics

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 material.

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 channels.