Environmental controls squeeze fused alumina, bauxite supply

By Sybil Pan
Published: Monday, 15 February 2021

Supply uncertainty facing the refractories raw material sector is to continue in the first quarter of 2021 due to regulations in major Chinese production hubs for bauxite and fused alumina, as well as surging logistics costs.

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.