Global Demand for Bauxite to Rise as China's Aluminum Production Boom

Researched by Industrial Info Resources Australia (Perth, Australia)--Global demand for high-grade bauxite continues to rise. The commodity has been trading at record highs since early 2014, when Indonesia imposed an indefinite ban on bauxite exports. The export cutoff, now in its 16th month, has been felt mostly by the world's largest minerals importer, China.

Much of the global demand for bauxite is spurred by China, since it makes about half of the world's aluminum. According to Industrial Info's plant database, China boasts more than 111 primary aluminum smelters and alumina refineries that require a continuous and uninhibited flow of raw bauxite to be processed and refined into aluminum.

Having once been Indonesia's largest customer for raw bauxite, the export ban essentially deprived China of its primary source of raw material. Despite this lurch in the market, China plans to increase its domestic aluminum production capacity by developing more than 52 new grassroot production facilities, mostly in its eastern-north-eastern regions. The fact that China is increasing its capacity would suggest that demand for raw bauxite is going to increase.

According to the Shanghai Metals Market, China's bauxite imports grew by 4.4 million tonnes in March, an increase of 144.07% since last year's figure. With only 13 operational bauxite mines, the country cannot sustain domestic demand for the raw material. Although there are plans to construct six new bauxite mines across the country, the increase of 3.7 million tonnes of bauxite per year will do little to fill the void left by Indonesia's mineral export ban.

As of January 2015, global bauxite reserves were recorded at 28 billion tonnes. At 7.4 billion tonnes, Guinea has the largest bauxite reserves in the world. Australia is a close second, with 6.5 billion tonnes, but is fortunate to include some of the world's highest-grade deposits: Weipa in Queensland and Gove in the Northern Territory. The size and quality of Australia's ore reserves, when combined with its proximity to China, places it in a great position to fill the void left by Indonesia.

Australia produces 61.5 million tonnes of raw bauxite per year, but the addition of nine new grassroot mines will increase this figure by more than 36.6 million tonnes within the decade. The addition will include the South of Embley project, which is expected to produce 15 million tonnes of bauxite per year by 2018. Interestingly, its arrival will not make it the largest bauxite mine in the world; that title is held by Alcoa Incorporated's (NYSE:AA) (New York) Huntly mine, located in Pinjarra, which produces 23 million tonnes per year.

Some experts have likened the bauxite industry to the iron ore industry of a decade ago, and believe the downturn in the iron ore market has helped bauxite producers begin exporting to China sooner than expected. The best-known junior bauxite miner, Australian Bauxite Limited (ASX:ABX) (Sydney), is on schedule to complete its first shipment to China within the next two months. The Bald Hill project is on schedule for final commissioning by the end of this year.

It originally was forecast that the Bald Hill bauxite project would cost the company AU$10 million ($7.9 million) to AU$11 million ($8.7 million) to develop, but recent public statements suggest that this figure has been reduced to about AU$6 million ($4.8 million) because prices for mining machinery, container systems and major equipment have fallen as a result of the iron ore downturn.

ABX likely will be the first junior bauxite company to enter the seaborne trade, but other juniors are following the trend. The high-grade quality of reserves held by junior bauxite companies will ensure that a demand for the product will remain for years to come.

Industry analysts expect that global aluminum demand is expected to rise 7.6% annually from 2015 to 2017. Asia and the Americas certainly will generate the largest share of aluminum demand throughout this time.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.