ALI RAW MATERIALS CONF: Five things we learned

Market participants were eyeing recent global trading volatility and the fundamentals of the bauxite market during Asian Metal’s Aluminium Raw Materials Conference in Jinan on May 18 – Metal Bulletin covers the key takeaways from the event.

Alumina faces global trading volatility…
The global alumina market has been hit by a series of shocks since the start of the second quarter, which triggered sharp market reactions.

Alumina price shot to all-time high after Hydro and Rusal successively declared force majeures on their alumina shipments.

Metal Bulletin’s daily fob Australia alumina index hit a historical high of $707.75 per tonne on April 24.

But there was a rapid retreat of alumina prices in the following month as a result of a squeeze in aluminium smelters’ margins, fresh supply from China, as well as the loosening of US sanctions on Rusal.

The benchmark Australia alumina index dropped to $557.53 per tonne on May 21.

Nonetheless, sentiment in the alumina market is still mixed with uncertainties about ongoing supply disruptions.

“The rest of 2018 will see an uncertain alumina supply situation until Hydro’s Alunorte and US policy issues are resolved,” Ron Knapp, secretary general of the International Aluminium Institute (IAI) told the delegates at the conference, adding that “Predictable is now more unpredictable.”

Despite recent softening of market sentiment, delegates view alumina prices as less likely to drop to levels recorded ahead of the Alunorte curtailment until the operations resume at the refinery.

Metal Bulletin’s Australia alumina index stood at $350.21 per tonne on February 28.

…But demand is still growing 
Alumina demand will grow on expectations of aluminium production ramp-ups, which are driven by rising aluminium consumption and robust aluminium prices.

Multiple speakers at the conference gave optimistic projections on aluminium consumption in both the near and long terms.

IAI’s Knapp gave a projection of global aluminium consumption at 70 million tonnes per year by 2020.

Xu Yongqi from Citic Futures has a robust outlook on aluminium consumption for 2018 in both China and markets outside China.

Xu expects consumption in China to reach 29.88 million tonnes in 2018, a year-on-year increase of 2.5%, and demand outside China to increase by 7% to 37.99 million tonnes this year.

Bauxite is oversupplied…
Despite the rising demand for alumina, the bauxite market is and will continue to be a buyer’s market for some years due to persistent oversupply caused by rising output globally.

Resumed and fresh supply has entered the bauxite market in the past year, and increased production is on the cards.

“Indonesia resumed exports and granted a good number of quotas to local miners, and Metro Mining started production,” a conference delegate told Metal Bulletin on the sidelines. “Apart from those, we are expecting more from Guinea in the next 1-2 years. The world is not short of bauxite at all.”

But the strong competition amid oversupply will ultimately subdue new projects and lead to a balanced market.

“The bauxite market will be oversupplied for some years, and prices might be under pressure. However, this situation will deter financing of new projects and cause those projects to stagnate as a consequence. In the end, new output will be subdued,” a second delegate at the conference said.

Metal Bulletin assessed Guinea bauxite prices at $38 per dry metric tonne, fob Kamsar, on May 10, while Metal Bulletin’s Brazil bauxite price was assessed at $36.50 per dmt, fob Trombetas, both unchanged from the previous pricing session two weeks earlier.

The fob Brazil bauxite price dropped by 2.6% in mid-April, whereas the Guinea assessment has been steady since late October 2017.

….But China will ramp up consumption
There is increasing demand for imported bauxite in China due to its aggressive plan to build alumina refineries along the coastline amid a depletion of domestic high-grade bauxite.

China alumina supply is expected to be at deficit in 2018, and requires new capacities to fill the gap.

China alumina market is expected to turn to a deficit of 770,000 tonnes in 2018 from a surplus of 450,000 tonnes in 2017, according to Xu from Citic Futures.

Total alumina capacity for refineries that are being built and planned to be built along the coastline have exceeded 30 million tonnes, according to Yin Zhonglin of Aluminum Corp of China Limited (Chalco) Zhengzhou Research Institute.

The fall in grades in domestic Chinese bauxite has also pushed more inland refineries to turn to high-grade imported bauxite.

…Yet Chinese inland refineries are not likely to completely rely on imported bauxite
Despite the necessities for inland refineries in China to buy imported bauxite feed, it is not likely that they will solely use seaborne bauxite.

The exploration of bauxite resources in China has picked up, and there have been continued attempts to optimize alumina production based on domestic low-grade bauxite, Yin said.

Blending domestic low-grade bauxite with higher-grade imported bauxite is still the first choice for inland refineries, and is expected to continue for a long time, he added.

“I’ve talked to a couple of refineries in Shanxi and Henan province, and in near term I don’t see any intention from them to switch completely to imported bauxite,” a delegate told Metal Bulletin.