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).
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
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.