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Alumina supplies from Pacific origins outside Australia have stepped up to the fill the gap in spot supply, Charlotte Radford told delegates at Metal Bulletin’s 24th Bauxite and Alumina conference in Montego Bay, Jamaica, on Wednesday February 28.
“Diversification of smelter feed is a necessity in order for smelters to fill gaps and reduce dependence on limited suppliers,” Radford said.
“Increasing Pacific spot liquidity is now being provided by Vietnam, Indonesia and India,” she added.
According to Radford, Pacific spot trades are increasingly perceived to be a reliable indication of the alumina market price.
“Vietnam is largely flat to Australia; it had started as a discount when it was a new brand but feedback suggests those trials were successful. It’s now looked at relatively favorably and trading on a par with the Australia base specification,” she said.
Indonesian and Indian cargoes meanwhile tend to trade at a premium to Australia, depending on delivery location and freight advantage versus Australia-origin alumina, she noted.
Metal Bulletin’s daily fob Australia alumina index stood at $350.21 per tonne on Wednesday, down from $362.32 per tonne on February 20.
Engaging in-house developed models using regression analysis and historic data, these trades can be normalized to the fob Australia benchmark, increasing liquidity feeding the index calculation.
Having spent several years from 2012 trading in a range of $300-350 per tonne, increased volatility in the past couple of years has seen prices as low as $198 in late 2015 and as high as $480 last October.
“There is volatility that we hadn’t seen before. The daily index allows us to respond to these changes as quickly as they happen,” Radford said. “Crucially though, daily pricing doesn’t necessarily mean daily price moves: it just means the capacity to reflect to the big moves that we have come expect in the alumina market, on the day that they happen,” she added.
Similarly there has been a trend towards increased diversification in bauxite, although this is likely to be a slower process, Radford noted.
Bauxite prices have been elevated since late last year, when force majeure announcements from Compagnie des Bauxites de Guinée (CBG) and Mineração Rio do Norte (MRN) prompted concerns over tightness.
“The question is, how quickly a refinery can be adapted for different feed and how feasible is it at all?” she told delegates.
Bauxite from MRN in Brazil, CBG in Guinea, and Weipa in Australia have typically been the starting point for spot purchase negotiations, but alternatives are being considered from other projects in these locations, as well as Jamaica, Indonesia and others, according to Radford.
The variation in specification of bauxite from mine to mine creates challenges in price discovery, since prices vary widely from transaction to transaction.
Metal Bulletin launched two regional price assessments last year for bauxite shipped out of Guinea and Brazil, using a more subjective approach to price discovery more appropriate for less liquid, less mature markets.
“Diversification and increasing spot market activity will drive a more sophisticated, objective index calculation,” Radford added.