Bauxite shortage likely for refractories

By Davide Ghilotti
Published: Monday, 15 February 2021

Refractory raw material consumers are likely to face shortages in bauxite, with the continued supply and logistics bottlenecks from China coming against a low-stock situation in destination markets.

Supported by a stronger yuan, the price of refractory grade Chinese bauxite started to rise in the fourth quarter of last year following only a minor decrease at the height of the Covid-19 pandemic when the first wave of closures swept nations across Europe and Asia. Fastmarkets' price assessment for bauxite, refractory-grade,85%/2.0/3.15-3.2 (0-6mm), fob Xingang rose to $430-440 per tonne on January 21, from a low of $380-390 in the summer (see chart). 

Bauxite_graph

The sector is going through a strange scenario where the market is still weak from a downstream perspective, but is also tightening fast on the supply side. And there are reasons to believe the tightness that market participants had been feeling during the closing months of last year will turn into a full-blown shortage in the first half of this year.

Drip-feed and destocking
Mining and calcination of bauxite in China’s main producing province, Shanxi, was limited throughout 2020. Mines that were temporarily closed during last year’s Lunar New Year holiday period did not restart when the Covid-19 pandemic hit China. This added to the strict restrictions on operations in the province associated with the central government’s environmental policies to limit air pollution.

Several large mines in Shanxi did not run for long periods of last year or, if they could, only at reduced capacity. Local calcination kilns also went through periods of forced closure. And mines in Guizhou and Henan could not fill the gap created by the lower Shanxi output. The result was drip-feed supply flows to international markets. This was a crucial factor preventing bauxite prices from dropping heavily even as consumer demand – hit by the wider effects of the pandemic – collapsed.

Between April and September last year, the price of 85%-quality bauxite fell only 4%, compared with 16% for Chinese refractory grade brown fused alumina (BFA). Meanwhile in primary consumer markets, such as Europe, buyers went through a heavy phase of destocking when they saw their business volume fall and sought to reduce inventory cost burdens.

Crucially, this is something that both buyers (refractories producers) and importers (traders and distributors) did. The result is that, at present, there is little stock left in Europe with traders, distributors or consumers. Stock volumes at traders’ and distributors’ warehouses have been described as "extremely low" by four different sources speaking to Fastmarkets. And no new supply is coming in to fill that void, due to a combination of winter closures in China and severe logistical issues.

Winter closures, shipping hurdles
For the third consecutive year, the central government has imposed wide-ranging limitations to heavy industry during the winter months to curb air pollution levels. Fastmarkets has learned that plants in Henan were shut from the beginning of December.
Sources pointed out that this round of closures – which should last well into March – is stricter than in previous years, with more frequent inspections and authorities monitoring factories’ energy usage. This means that those operations that tried to run at night-time to avoid detection last year or the year before are unlikely to do so now.

This four-month period of downtime adds to the existing low supply situation. Some companies upgraded their equipment and received a special permit to continue operating, but there are still logistics bottlenecks for the delivery of the reduced volumes that are being produced.

Limited availability of vessels and vessel space reported in the past couple of months meant cargo that was originally due to set sail during November and December was, in many cases, delayed and stuck at Chinese ports. Sources told Fastmarkets again in January that trucks in main areas, including Shanxi and Henan, are not allowed on roads, which means material that may be ready at plant and bound to port cannot be moved.

The soaring costs for container freight in the China seaborne routes have led to double-digit losses for traders and intermediaries handling transport from China to destination markets. Quotes per 20-foot containers from China to Europe (main ports) were heard at $4,000-5,000 this week, against $800-900 last April. 

While some participants have been able to resort to bulk shipments instead, delays affected these too. Fastmarkets is aware of three to four vessels scheduled to set sail bound to Europe, carrying mainly bauxite and BFA. But these are not expected to reach port before March and will require additional weeks before being available for delivery to customers. This means that very little is likely to reach consumers’ plants before April.

With carriers still reluctant to deploy more vessels and increase the frequency of voyages, it is expected shipments in the near future will continue to incur delays and high costs. An ever-tightening supply from China, combined with no stocks in Europe and long lead times for material on the way, all point in one direction: participants should brace for short-term shortages of bauxite.