The 2020-2021 winter shutdown from last November to the end
of March is the fourth consecutive order as part of
China’s continued efforts to reduce air pollution
in the northern part of the country. Reduced supply caused by
rigid environmental regulations together with increased
shipment costs have supported upward adjustments in bauxite and
fused alumina prices from China.
Fastmarkets’ fortnightly assessment for
bauxite, refractory-grade, 85%/2.0/3.15-3.2 (0-6mm), fob
Xingang was $430-440 per tonne on January 21, narrowing upward
by $10 per tonne from the previous assessment. On the same day,
the price for alumina, fused brown, min 95% Al2O3, refractory
sized (0-6mm), fob China was $680-700 per tonne, up by $10 on
the low end per tonne from two weeks earlier on bullish market
sentiment. And alumina, fused white, 25kg bags, cif Europe
stood at €655-730 ($792-883) per tonne, narrowing upward
by €15 per tonne from the previous assessment on January
7.
Stricter regulations
Market participants saw China’s environmental
regulations in 2020-2021 as stricter than in previous years,
especially in Henan province, a major production hub for fused
alumina.
At the end of 2020, fused alumina producers faced widespread
operation shutdowns in major production hubs in the cities of
Zhengzhou, Luoyang and Sanmenxia, in the province of Henan,
lasting as long as two months. These shutdowns were triggered
by several rounds of Code Red (first level) and Code Orange
(second level) emergency response protocols, and prolonged by
land transport halts for commodities when the protocols were
initiated.
The anti-pollution controls did ease off in Henan at the
start of 2021, but a new Code Red emergency response protocol
was triggered on January 22. On that day, the provincial
government of Henan issued a file ordering that 14 cities
(Zhengzhou, Kaifeng, Luoyang, Pingdingshan, Anyang, Hebi,
Xinxiang, Jiaozuo, Puyang, Luohe, Xuchang, Sanmenxia, Nanyang
and Jiyuan) start a Code Red Emergency Response Protocol from
January 22.
Elsewhere in Shanxi province, where refractory grade bauxite
is produced and calcined, calcination has been interrupted by
tight supply of raw material amid mining regulations and
environmental controls. These winter environmental regulations
have added to the existing supply crisis caused by a shortage
of bauxite ore and depletion of high-quality resources there
over the past year.
Wider supply-demand gap
The tough anti-pollution measures in Henan have achieved
some positive results in improving air quality, according to
the Department of Ecology and Environment of Henan
Province.
The 2020 average concentration of PM 2.5 and PM10,
measurements of atmospheric particulate matter, decreased by
13.5% and 11.9% from a year earlier in Henan. Meanwhile, the
number of days with good air quality reached 245 there, a
record high since 2015.
But the improved air quality in Henan province has come at a
cost to fused alumina capacity. Market sources have reported
low inventories of brown fused alumina in China. Some traders
said producers of fused alumina are now focusing on executing
earlier orders and have limited availability for spot
supply.
Regarding the supply of refractory grade bauxite, while
there are rumors of mining activities in Yangquan county,
Shanxi province, at the time of writing, suggesting a daily raw
material output of 3,000 tonnes, others in Xiaoyi and Jiexiu
areas are talking about a shortage of raw material for
calcination.
At least two traders of bauxite told Fastmarkets that they
are now out of the bauxite market due to a lack of raw material
for calcination amid the suspension of mining activities in
Shanxi.
Short-term outlook
The outlook for refractories raw materials is linked to how
much operations are interrupted by anti-pollution controls in
China.
Suppliers believe high-grade raw material for the
calcination of bauxite higher than 85% grade will face
continued supply tightness in the short term because it is not
known when the major Xiangwang mine in Xiaoyi city, Shanxi will
restart.
For fused alumina, uncertainty around environmental
regulations in Henan province continue to weigh on the market.
Although the new round of regulations on January 22 were not as
rigid as the ones issued last winter, a fused alumina producer
in Henan said he was wary about unstable air quality for the
rest of the regulation period until it expires at the end of
March.
In addition, how long the high logistic costs –
both domestic and overseas – will last is another
factor clouding the short-term outlook. "Even when operations
are back to normal and there is demand, the long-distance
freight costs will remain one major problem in seaborne
business," a second fused alumina producer in Henan told
Fastmarkets.
Shipping hurdles constitute another factor market sources
have cited as affecting the export of bauxite and fused alumina
from inland production areas to port cities. "Domestic land
transport is usually tight before the Lunar New Year. Now with
Covid-19 [re-emerging] in Hebei province, it is increasingly
difficult to transfer processed material out to the port city,"
a producer in Shanxi told Fastmarkets.
"In addition, there is the skyrocketing sea freight rates.
Our orders of 400 tonnes of calcined bauxite to Europe have
been affected. While the material is ready at plant, we
cannot move it to the port for loading because our clients
[are generally] waiting for lower freight costs," she
added.