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Mark Downing on worries regarding bauxite trading
Essential to China’s relentless urbanisation, aluminium is yet another of China’s fixes. It is increasingly producing more of this versatile metal than any other country for use throughout industries as diverse as construction, manufacturing and packaging. Despite global oversupply, plant closures and rising production costs, China continues to expand its production capacity while struggling to secure sufficient raw ore.
According to Bloomberg, domestic bauxite supplied just over a third of China’s needs last year, with an additional 71.6m tonnes imported of which 48.7m tonnes were sourced from Indonesia. Bauxite is refined into alumina and then transformed via electrolysis into aluminium. But since January, China has been forced to find alternative sources owing to the Indonesian ban on ores to spur on its local processing industry.
Some observers speculate that the new Indonesian president Joko Widodo may relax the export ban. If the ban holds, much of the Indonesian bauxite industry may be shut down for several years as developing upstream facilities is expensive and time consuming. The Chinese alumina refiners were given the option that, if they committed to build facilities in Indonesia, they could continue imports until their refineries were operational. However, faced with domestic processing overcapacity and low profitability, such investment is not feasible.
Ahead of the ban, China’s aluminium producers stockpiled upwards of a year’s worth of supply of raw material. Moreover, they have been actively seeking new sources to accommodate their ambitious plans for capacity expansion. Wood Mackenzie, a consultancy, estimates that Chinese bauxite demand will increase by 30% by 2018 and may reach as much as 240m tonnes by 2030.
China’s aluminium industry, like many others, is blighted by overcapacity and in need of restructuring. Falling prices and heavy losses have forced several ... More>>