The Chinese Demand for Bauxite
The fight for bauxite is on!
A simple strategy is always the best and China has a simple strategy with regard to conserving its minerals and ensuring a plentiful supply for the future.
Buy every thing and sell nothing.
This strategy is reflected in the ever decreasing export of minerals from China including gold, silver and rare metals and the ever increasing purchase of minerals including mines and buying larger shares in mining companies.
This applies ever more so to bauxite as China ramps up its need for alumina to make aluminium.
In 2011, China stalled its bauxite tender in the second half of the year, effectively depriving the bauxite market of around 500,000 tonnes of bauxite at that time, while at the same time buying up mineral rights and even bauxite mines. This policy has continued up until the present day.
Not too long ago, The Fijian Government granted a land lease to a Chinese company for the country's first bauxite mine. Fiji's Minister for Lands and Mineral Resources, Netani Sukanaivalu, recently handed the lease documents to the Managing Director of Chinese-owned company Xinfa Aurum Exploration, for the mine site on Fiji's second island, Vanua Levu. The Chinese Ambassador, Han Zhiqiang, said that Fiji is expected to rake in 20 million Fiji dollars (11.11 million US dollars) through the bauxite mine in Bua in the northern island.
He said Fiji would enjoy more success on the way of realizing economic prosperity and "building a better Fiji." Then, as part of its commitment to the local community, Xinfa Aurum handed a check for 60,000 Fiji dollars (33,000 US dollars) to the landowners for an educational trust fund called "Future Generation."
Traditionally Indonesia has always been the primary source of bauxite for China. However, according to the China National Bureau of Statistics (NBS) Indonesia's market share of Chinese bauxite imports fell to just over 65% in 2007 from approximately 90% the previous year. But efforts to address illegal mining in Bintan is seeing imports from Indonesia to China decline opening the door to suppliers from Australia to capitalise on sales into China to address the shortfall in supply.
Alison Saxby, a senior consultant at an IM's Bauxite & Alumina seminar at Roskill Information Services recently revealed that expansion of Chinese bauxite production for the metallurgical alumina market has resulted in significant diversion of non-met bauxite away from end users to alumina smelters and tthe china government has began implementing policies to prioritise domestic bauxite for alumina and reduce its independence on bauxite imports, as a result of the rapid growth of the alumina industry - a growth of over 16 million tonnes in 2010.
China is the world's largest producer of abrasive grade bauxite (AGB) now producing 1.2 million tonnes out of the global production of 1.7 tonnes.
According to Saxby most of China's AGB is used to produce BFA with an estimated 40-50% of Chinese calcined bauxite being abrasive grade material.
The reason for increasing Chinese demand for BFA and refractory bauxite is due to the emergence of the country's refractories industry, which is now around 23m. Tonnes - 50% of the world's production.
In addition to supply competition, bauxite export markets have suffered from a tightening of Chinese government policies on mining; including a clampdown on illegal mining in Shanxi province in 2008. In Xiaoyi, all underground mining was banned until 2010 - and as of early 2011, bauxite production in Xiaoyi is still at 50% of pre 2008 levels, Saxby revealed.
Not only that, this year the Chinese government tightened the regulations for companies exporting bauxite, adding conditions such as, each company must own a bauxite mine or buy from a legal mine. Also mines must now be able to demonstrate possession of a licence, an environmental permit from the provincial government, and social securities for workers.
Meanwhile back at the ranch, according to government figures, Australia produces 40 percent of the worlds bauxite and over 30 percent of world alumina so is a prime source for the Chinese Smelters.
There are currently five bauxite mines in Australia providing feedstock for the seven alumina refineries, which in turn supply alumina to the six Australian aluminium smelters and the export market. Australia is the largest producer of bauxite in the world, with 69.5 million tonnes produced in 2009.
The five major Australian bauxite mines are:
Boddington (Western Australia) - BHP Billiton - Worsley Alumina
Gove (Northern Territory) - Rio Tinto Alcan
Huntly (Western Australia) - Alcoa of Australia
Willowdale (Western Australia) - Alcoa of Australia
Weipa (Queensland) - Rio Tinto Alcan
The Gove and Weipa deposits have around 50 percent available alumina and are amongst the world's highest grade deposits. However, the Western Australian deposits in the Darling Range and the undeveloped Mitchell Plateau are lower grade with around 30 percent available alumina.
Although most Australian deposits have the disadvantage of being relatively high in silica requiring a higher use of caustic soda and consequent higher costs, this is offset by the shallower deposits and relative ease of mining.
In addition, the security of bauxite feedstock is of major concern to Chinese refineries as they continue to add capacity in the long term. For this reason, Australian suppliers are well positioned.
Getting back to China buying mines and mining shares. Bauxite Resources Ltd recently announced a further Heads of Agreement with its long term Chinese partner, Yankuang Corporation to complete a bankable feasibility study for the design and construction of a modern refinery in the southwest of Western Australia to refine Darling Range bauxite into alumina. The further Heads of Agreement requires shareholder and regulatory approval of course but at this looks set to go ahead over the next five years or so.
Bauxite Resources chairman and acting chief executive Barry Carbon said the deal signed with its Chinese partners meant the company could now fast track to the "end game".
"The end game is to build a refinery, which can take Darling Range bauxite and turn it into a secondary processed alumina," he said.
Yankuang will fund 91 per cent of the refinery's construction costs in return for 70 per cent of the alumina product produced.
Yankuang Corporation owns 88 per cent of Yanzhou Coal, which bought Australia's Felix Resources, but the deal with Bauxite Resources would be the first refinery it has built outside China.
"The Chinese company have a big smelter operation but they do not have their own supply of alumina," Mr Carbon said.
"We have been looking for an appropriate way to monetise our bauxite and they had been looking for a way to give them some security of resources."
Construction on the refinery, which is projected to cost over $1 billion, is expected to start in four to five years, subject to the bankable feasibility study, site selection, environmental and regulatory approvals.
Mr Carbon said the studies would centre on constructing a world-best practice refinery, focusing on high environmental standards.
"All the Australian refineries in concept terms are about 40 to 50 years old, before there was environmental awareness," he said.
"The world has moved along since then, so we think our timing is great. There has not been a significant quantum step towards a modern refinery in Australia."
Although there has been a recent dropping slightly, The future still looks bright for Australian bauxite!
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