Tough Times for Bauxite Aspirations

Press/Media: Press / Media

Description

Discusses the potential for new market entrants in the bauxite sector in Australia

Period1 Jun 2012

Media contributions

1

Media contributions

  • TitleTough Times for Bauxite Aspirations
    Degree of recognitionNational
    Media name/outletResourceStocks Magazine - Aspermont
    Media typePrint
    Duration/Length/Size1 page
    CountryAustralia
    Date1/06/12
    DescriptionFledgling bauxite producers face tough hurdles to get their product to market. Not only do junior companies need to become proficient in the technical aspects of bauxite exploration, alumina chemistry and what constitutes an attractive export product, they have to overcome the challenges of infrastructure solutions, typically a daunting prospect even for the large multinationals such as those operating in the other bulk commodities of iron ore and coking coal.

    Top that off with environmental challenges and strong overseas competition and one gets to understand why successful new entrants to the bauxite arena are few and far between. But all that may yet change.

    In recent months, would-be Australian bauxite producers have had a couple of big wins in the regulatory space.

    Firstly, the Indonesian government has toughened its stance on value-adding – aiming to curtail export of mineral ores, including bauxite, in favour of domestic downstream processing on Indonesian soil. Australian producers can therefore compete for the potential gap in the export market that this policy may create.

    Secondly, those explorers based in Queensland have welcomed the change of state government there – with the Liberal-National government set to roll back some of the punitive environmental measures imposed by the previous Labor government’s 2005 Wild Rivers legislation.

    The Liberal National Party has committed to winding back the legislation as part of its first 100 days in government plan, boosting the potential for the development of bauxite resources in the Cape York region. These legislative free-kicks, combined with bauxite being yet another ‘China story’ when it comes to the demand-side of the market, add up to a rosy future for Australian bauxite juniors.

    To add further content, China has become a major importer of bauxite from Indonesia. Indeed, analysts at CRU Group estimate that 2011 Chinese imports from Indonesia totaled over 36 million tonnes. Whether this export of bauxite from Indonesia to China is sustainable over the longer term is now a key question that the industry is grappling with. The Indonesian Energy and Mineral Resources Minister in Indonesia, Jero Wacik, on 13th February, signed a ministerial regulation banning exports of all unprocessed minerals, including gold, copper, nickel, bauxite and iron, starting from 2014. According to this regulation, a complete ban on the export of mineral ores will become effective in 2014.

    Whilst it is remains unclear whether the regulation will be fully implemented, it is clear that it has opened up an opportunity to Australia.

    So why the ban? Like governments the world over (including Australia), Indonesia would much prefer to create downstream employment domestically rather than ‘export jobs offshore’. Through this regulation, the Indonesian government intends to boost local industry, in this instance by encouraging (forcing) the building of alumina refineries and aluminium smelters in Indonesia. CRU Group note that Indonesia presently has no alumina refineries, although one chemical grade alumina plant is under construction in the Tayan District and another smelter grade alumina project, Mempawah is expected to be built in West Kalimantan by 2017.

    So is China’s bauxite supply at risk if the Indonesian ban is effective? Driven by rapid growth in alumina capacity and relatively limited domestic supplies of bauxite, imports of bauxite into China have increased significantly in the past few years. In 2011, more than one third of alumina production in China relied on imported bauxite. Total imports of bauxite totaled over 45 million tonnes of which 80% came from Indonesia.

    If the Indonesian government does ban exports of bauxite, then China’s bauxite and alumina supply chain could be severely disrupted. CRU Group analysts consider that the ban would almost certainly boost bauxite prices, probably significantly, and result in higher costs for Chinese refineries and thus higher alumina prices. This news is good for Australian bauxite hopefuls – but also poses a threat to the Chinese aluminium industry as smelters would incur higher raw material costs, at a time when smelters are already under pressure from rising energy costs.

    The aluminium value chain is no longer just the preserve of the majors – although Alumina (AWC), BHP Billiton (BHP) and Rio Tinto (RIO) remain the only producers on the ASX. New project developers Australian Bauxite (ABZ), Bauxite Resources (BAU) and Cape Alumina (CBX) are joined by explorers Atlantic (ATI), Aziana (AZK), Ord River Resources (ORD), Queensland Bauxite (QBL) in eyeing the market for aluminium feedstock.
    Producer/AuthorAllan Trench
    PersonsAllan Trench

Keywords

  • bauxite
  • aluminium
  • mining