Supply concerns for bauxite, fused alumina in China

By Sybil Pan
Published: Wednesday, 16 February 2022

The winter shutdown in China did not stop the fall in fused alumina prices over the past two months, but another interruption to operations created by the Winter Olympics in February could last until the middle of March. While bauxite prices held mostly stable in the period despite operational closures, the supply crisis is not over.

Bauxite and fused alumina industry participants are once again facing a supply crisis in the two upstream materials for refractories after a volatile 2021 caused by the uncertainties of market drivers. Those created a series of consecutive downward adjustments in the prices for both brown and white fused alumina (BFA and WFA) in the two months of the winter shutdown period in China.

Anti-pollution controls started in November in the major fused alumina production hubs of Henan province, adding renewed pressure on output, which was just recovering from the height of China’s power crunch in September-October.

Operations were reported to be shut down with unknown schedules for restarting, or to be experiencing production cuts amid staggered operations. Despite major operational interruptions, the prices of BFA and WFA have been following a downward trajectory.

Fastmarkets’ price assessment for alumina, fused white, 25kg bags, cif Europe, dropped by €115 per tonne, 10.55% on the mid-point, to €900-1,050 ($1,021-1,191) per tonne on January 20 from the 16-year high at €1,060-1,120 per tonne on October 28, 2021.

Meanwhile, Fastmarkets’ price assessment for alumina, fused brown, min 95% Al2O3, refractory sized (0-6mm), fob China, declined to $940-980 per tonne on January 20 from its 13-year high at $1,050-1,150 per tonne on October 28, 2021.

Sources attributed the "counter-intuitive" price movement to slowing demand at the end of the year in international markets, plus the risk of a further price drop, considering the previous rally in both BFA and WFA prices.

"We have [enough] inventory for the first quarter even before the price of fused alumina started its crazy jump in October," a buyer in Asia told Fastmarkets. "For now, we’d like to stay on the [market] sidelines. It’s still uncertain how the price for BFA will move after China’s lunar new year holiday."

Bearish as it may be for BFA and WFA, sources speaking to Fastmarkets are increasingly warning about possibly tightening supply in the first quarter of 2022 with Winter Olympics from February 4 to 20. While it is uncertain whether the event will affect large volumes of fused alumina output in major production regions, the chances of output cuts are high, according to one producer of fused alumina in Henan province.

Two traders in Europe echoed this view.

"Operations in Sanmenxia city are still on halt after earlier suspensions amid power shortages. Elsewhere in Zhengzhou, output has been interrupted by Code Orange emergency protocols in the past two months. Those regulations will only be more rigid during the Olympics," a second producer in Henan said.

The outlook seems unclear, according to a third producer in China. It will depend on the operating rates after China’s lunar new year holiday. Meanwhile, there is a Covid-19 outbreak in the north of China, especially in the port of Tianjin, adding to logistics costs for inland suppliers already considering the twofold increase of land transport costs from Henan to the port.

Less-volatile bauxite

Compared with fused alumina, the market for refractory grade bauxite in 2021 seemed to be less volatile, with prices fluctuations within the range of $10-20 per tonne for the past year.

Fastmarkets assessed the price for bauxite, refractory-grade, 85%/2.0/3.15-3.2 (0-6mm), fob Xingang, at $450-460 per tonne on January 20, stable for a month-and-a-half, just $10 per tonne down on the high end from its five-year-high of $450-470 per tonne on November 11.

The prevailing availability risk could be one driver behind the flat bauxite prices. Sources said that calcination kilns had all been shut down in the major production hub of Xiaoyi. Others in regions such as Jiexiu, in Yangquan, have also been closed because of bauxite ore shortages or higher costs for natural gas and coal in the winter season, according to sources.

Elsewhere, the environmental controls in December-January in Guizhou province, another production hub for calcined bauxite, added to the pressure on supply. Inspection teams from China’s Ministry of Ecology & Environment (MEE) reported mining violations in Guizhou province in January, accounting for almost half of those mining activities failing to file for official documents, resulting in severe damage to the local environment.

Their reports specifically pointed out violations of laws and regulations in the development of mineral resources in regions such as Xiuwen of Guiyang City and Huangping of Qiandongnan Prefecture. As a result, bauxite mining activities in Guizhou were said to be shut down for a month-and-a-half for further upgrades to meet regulatory standards, according to sources.

"The market is consuming existing inventory with limited new output from either Shanxi or Guizhou. There could be a supply gap once the downstream market is active again after the holiday," a producer of bauxite in Shanxi said.

"The current market is quiet, which could account for the stable prices," a trader of bauxite told Fastmarkets. "However, the market outlook after the holiday is very uncertain with new possible operation interruptions."