Restricted refractory-grade bauxite supply offset weak end-user demand in 2019

By Sybil Pan
Published: Tuesday, 04 February 2020

Weakening refractories business affected trade flows of Chinese bauxite to international customers, but the supply tightness in mining and processing acted as a counterbalance, reports Sybil Pan.

The performance of the refractory-grade bauxite market was closely linked to supply restrictions in China in 2019, mainly due to reduced mining capacity and rigid environmental constraints. 

At the same time, a sluggish end-user refractory market counterbalanced the supply tightness to some degree, resulting in a relatively stable – albeit slightly downward looking – market in recent months.

Mining of bauxite in Shanxi and Henan provinces – two of the major production hubs for non-metallurgical-grade bauxite ore in China – has faced regular interruptions since 2016, as a result of government efforts to bring an end to unregulated mining. 

In 2017, Beijing’s environmental inspection body ruled that mines with an annual bauxite output of less than 300,000 tonnes would be shut down, to remove the outdated, small-scale capacity. That move was echoed by the government in Henan province.

In Shanxi province, unauthorized and unregistered mining operations were also under the spotlight and faced a rigid inspection regime, with action taken at a policy level to tighten the control of illegal mining. 

While governmental efforts to improve order in the industry is one reason for bauxite’s supply tightness, there is also the matter of a reduction in exploitable resources after years of unregulated mining. As one bauxite ore producer in Shanxi province said: "At least one large-scale mine in Xiaoyi city [one of Shanxi’s bauxite mining hubs] experienced depletion."

The threat of bauxite ore supply problems is a big cause for concern for downstream calcination factories. "At the moment, we can ensure supply of the 85% and 86% grades of calcined bauxite. But it’s true that it’s difficult to source," a refractory-grade bauxite producer in China told Fastmarkets, adding that the availability of higher purity 87% and 88% grades had been compromised by a lack of raw materials for calcination and a shift in client demand to lower grades.

In addition, stricter environmental regulations have been interrupting calcination operations. "Normal operation was just for a very short period [in 2019]. For the remainder of the year, we are either upgrading the calcination kilns or in production suspension when the air quality became worse and triggered emergency response protocols," a second producer said.


Tight supply and weak demand

The combination of mining restrictions, resource depletion and production shutdowns should have driven the price of calcined bauxite on an upward course, yet prices slowly ticked down or stayed flat throughout 2019. 

Bauxite prices started 2019 at a relatively low level, compared with the start of 2018, after a significant price appreciation during the second half 2017 due to shortages in China. As it turned out, a weak performance by the steel sector outside China in 2019 affected demand in most international markets.

The price of bauxite, refractory-grade, 85%/2.0/3.15-3.2 (0-6mm), fob Xingang, stood at an average of $420 per tonne at the start of January in 2019, 8.3% lower than the average of $455 per tonne at the start of 2018.

The price fell due to sluggish demand from the refractory sector into the summer months, and subsequently flattened for most of the third and fourth quarter on slow trading conditions. 

Fastmarkets’ assessment for that grade stood at $385-395 per tonne on January 23, 2020, up slightly following an appreciation of the yuan against the dollar. 

The price movement of higher-purity bauxite, refractory-grade, 86%/2.0/3.15-3.2 (0-6mm), fob Xingang, was substantially similar to the lower 85% grade. It started 2019 at an average price of $440 per tonne, 7% down from the average price of $475 at the beginning of 2018. 

Fastmarkets’ latest assessment for that grade was $395-420 per tonne on January 23, also up at the beginning of the year due to the stronger yuan, as well as the supply tightness. 

Supply shocks

"The market as we see it has reached a stable point given the concerns over supply and calcination processing," a refractories trader in China said, echoing other views citing broad stability in short-term market fundamentals.

Other sources, however, warned that the supply disruptions could create supply shocks as and when demand improved. "On the supply side, some mines in Shanxi are running out of resources. 

Meanwhile, on the calcination side, the difficulties in sourcing raw materials and increasing energy costs for natural gas calcination (since calcination with coal is restricted), would drastically affect the output of the material," a second refractories trader told Fastmarkets.

A distributor in Europe said that "any pick-up in demand right now could create short-term supply shocks" and that would support market prices.