Balancing sluggish demand with tight supply in bauxite

By Sybil Pan
Published: Thursday, 10 September 2020

Refractory-grade bauxite prices have held firm due to tightening supply despite the uncertainties caused the Covid-19 pandemic.

The refractories market has been under pressure since 2019 and the Covid-19 pandemic brought another blow to the market by slashing industrial activity significantly in 2020.

Global output of crude steel, the major downstream consumer of refractory products, fell by 6% year-on-year to 873.1 million tonnes in the first six months of 2020, according to statistics from the World Steel Association.

The falling crude steel output damped demand for refractories products and their raw materials, with calcined bauxite initially following the price trend.

But the evolving market dynamics of bauxite have led to an unusual balance between sluggish demand and tight supply in the past couple of months. Continued supply issues on the mining front have held the calcined bauxite market mostly firm, after a downward adjustment of 6% in June-July from the peak of the year.

Fastmarkets’ assessment of the price for bauxite, refractory-grade, 85%/2.0/3.15-3.2 (0-6mm), fob Xingang, maintained its year-to-date peak of $405-415 from March until late May, when the global markets were pummelled by the Covid-19 pandemic.

This caused the price of the material to drop by 6.1% to $380-390 per tonne by the start of July. Nevertheless, the market then stood firm during the second half of July and even showed indications of an upward adjustment due to the supply shortage.

Fastmarkets’ fortnightly assessment for bauxite, refractory-grade, 85%/2.0/3.15-3.2 (0-6mm), fob Xingang, was at $380-400 per tonne on August 6, widening upward by $10 per tonne from $380-390 per tonne in the previous assessment.

Environmental restrictions that started in the second half of 2016 have brought severe disruptions to the supply of refractory-grade bauxite in the main producing areas across China.

Stepping into 2020, major mining activities in Shanxi province were still halted or operating at a minimal level as a result of continued mining restrictions and environmental regulations. Sources told Fastmarkets that they viewed the situation as a near-term new normal for bauxite supply in China.

In Yangquan city, there was some mining activity, but only at a restricted level. "We used to have a daily output of bauxite ore of 3,000 tonnes," one local producer said. "However, the interruptions to production caused by environmental regulations on open-cast mining have slashed output to 300-400 tonnes per day."

At other production hubs in Shanxi province, there were some underground mining activities in Fangshan county, Lüliang city (expected to produce around 600 tonnes per day), whereas Jiexiu city and Xiaoyi city, where the major Xiangwang mine is located, were under rigid regulations with almost no output except at some unregistered facilities, according to market sources.

The official restart timeline for operations there was unknown, market participants told Fastmarkets.

Against the backdrop of tight bauxite ore supply and strict environmental regulations, a large number of calcination factories in Shanxi were forced to reduce their output of calcined bauxite or even put their operations on temporary closure.

"The pressure faced by calcination factories is the increasing cost of bauxite ore and the weak demand from the downstream consumer sector," a source at a calcination factory said.

"Prices of bauxite ore have moved up to 1,400 yuan [$205] per tonne, about 600-800 yuan per tonne up from that of last year," he added. "[At the same time,] the price for the finished product at 88% grade is only 2,350-2600 yuan [per tonne]. So there is very limited profit for calcination factories."

Evolving market dynamics in the raw bauxite ore sector have contributed to changes in the material’s supply pattern this year. Sources have told Fastmarkets that raw bauxite ore was being shipped from Guizhou and Henan provinces into Shanxi to be used with locally produced material for calcination, owing to the supply shortage.

Several market participants agreed that material from the three provinces can be used for calcined bauxite production, although the quality of the finished product was unknown. But others viewed the situation as a short-term development, considering factors such as land freight costs and the purity of the ore.

"It’s not sustainable and economical to ship the material from Guizhou and Henan provinces. I think the material from Guizhou was shipped during February-May, when China launched the toll-free policy for highway transport [to boost trade after Covid-19 pandemic restrictions were ended], significantly cutting the fee to ship the ore from Guizhou to Shanxi," a third local producer said.

"Under normal situations, the transport fee would stand at about 400-500 yuan [per tonne], which is not economical for calcination factories. In addition, there is the risk of material quality, including the yield rate for certain grades of the calcined bauxite," he added.

Material shipped from Henan province has a much lower freight rate, but there can be the problem of lower purity and density.

The lower content of aluminium oxide indicate that it would be harder to calcine the material for high-quality refractory-grade bauxite. Meanwhile, the lower density of the material meant that its heat resistance would be affected, the same producer said.

Industry participants were now asking how much the supply issue would affect the calcined bauxite market. Although there was a supply crisis, sources saw the market as balanced as long as demand remained disrupted by Covid-19.

"The price of the calcined bauxite in the domestic market has been increasing recently. However, there is still the pressure for further upward adjustment considering the present market conditions," a bauxite producer in Shanxi said.

"Demand for certain grades of calcined bauxite was slashed by around 50%," he added. "We have been hearing numerous inquiries, yet it’s difficult to have any deals done."

Another local calcined bauxite producer said that although there was no output from major mines in Shanxi, the supply could meet demand considering the current market fundamentals. Therefore, the price direction was driven by demand issues.

Some other traders forecast the market to be bullish in the coming months once overseas buyers returned to the market from their summer holidays, and predicted a new round of upward price movement.

This article was first published in the September 2020 issue of Metal Market Magazine, which carries in-depth feature articles, analyses and reviews of metal and steel markets.