Sources recently told Fastmarkets that the government is in talks to reduce the severity of the ban because the development of domestic alumina refineries is not progressing as expected.
Fastmarkets has heard that the ban may ease in the next couple of months, with Indonesian bauxite beginning to appear in the international market by the fourth quarter of the year.
Indonesia announced a ban on bauxite exports in 2021 to encourage the further development of the downstream domestic metals sector. The government confirmed the move in May 2022, with the ban officially coming into effect on June 10, 2023.
Indonesia is the world’s sixth-largest producer of bauxite, according to the US Geological Survey, with reserves of 1 billion tonnes — but it only produced 20 million tonnes of bauxite in 2023.
Fastmarkets learned in February that the government had authorized mining quotas for an added 14 million tonnes of bauxite, but it appears alumina refining capacity has failed to meet the archipelago’s ample reserves.
“The Indonesian government may be thinking to ease the bauxite export ban simply because they do not have the alumina refineries to consume that much bauxite,” Fastmarkets analyst Andy Farida said.
“So, in this instance, the ban is hurting rather than benefiting Indonesian bauxite producers,” he added.
Strong appetite from China for Indonesian bauxite
Sources told Fastmarkets the main incentive for relaxing the export ban would be China’s strong appetite for Indonesian bauxite.
Indonesian bauxite once represented the lion’s share of China’s imports of the material, accounting for roughly 75% of the country’s total imports until the Indonesian government issued its first ore export ban in 2014, but the ban was reportedly rescinded in 2017.
“I am also sensing that bauxite producers are under pressure from the export ban, with lesser income from a domestically set rate – especially because there is great demand for bauxite from China,” Farida said.
“In the event the Indonesian bauxite ban is lifted, China will be able to purchase all the excess Indonesian bauxite and negotiate lower prices from Guinea,” Farida said.
“I think bauxite miners in Indonesia have tried to lobby their government to lift the export ban because increasing bauxite prices are very attractive,” a Chinese trader said.
“It is much easier to make decent profits by just selling bauxite than selling alumina. Constructing alumina refineries takes time and money, and it may not always be profitable,” the trader added.
Fastmarkets’ monthly price assessment for bauxite, cif China was $73-76 per dry metric tonne (dmt) on June 20, up by $1-3 per dmt from $70-75 per dmt on May 16.
“I heard bauxite miners in Indonesia complained that without exporting the ore to earn money, they did not have enough capital to invest in alumina projects,” a second China-based trader said.
Other market participants doubted that policy change would happen, amid Indonesia’s longstanding commitment to resource nationalism, as exemplified in the nickel market.
“It will not happen this year. The earliest time might be next year. The new government needs time and go through procedures to make the decision. It’s currently very ambiguous, no one knows what will really happen at present,” a Chinese alumina producer source said.
“Indonesia has put a great effort into attracting investors to construct alumina projects in the country to upgrade its industrial chain. The projects under construction have made progress and I heard several projects will be put into operation by the end of this year,” a third Chinese trader said, adding: “I see no reason to lift the ban.”
Sources noted that allowing bauxite exports would be detrimental to domestic alumina refineries because they would have to source feedstock from the global market and subsequently pay higher prices.
Increased alumina refining and aluminium smelting capacity remains a priority
Despite reports of a possible easing of Indonesia’s bauxite export ban, developing the country’s aluminium infrastructure remains a top priority for the government.
One of the country’s key smelters, Indonesia Asahan Aluminium (Inalum), is working with Emirates Global Aluminium (EGA) to expand its aluminium output and currently has a primary aluminium capacity of around 275,000 tonnes per year. It hopes to expand that to 600,000 tonnes per year, but sources told Fastmarkets that this was still subject to a feasibility study. Sources could not give a time indication for the completion of the project.
Nonetheless, Fastmarkets has heard that the government was eager to expand Inalum’s annual smelting capacity to 1 million tonnes in due course.
Inalum’s smelter consumes around 500,000 tonnes annually, about half of Indonesian alumina, with the remaining 50% sold to third parties.
An uptick in Indonesian units has appeared in the alumina spot market recently, with Australian supply having become less reliable following Rio Tinto’s declaration of force majeure on cargoes out of Queensland ports and the curtailment of Alcoa’s Kwinana Alumina Refinery.
Indonesian bauxite on the global market could reduce alumina deficit
Fastmarkets analysts expect the global alumina market will be in a deficit in 2024, because of a string of supply pressures that have affected the market in recent months.
“In light of the recent situation in the global alumina supply landscape, output in 2024 is likely to be affected by Alcoa’s curtailment of operations at Kwinana in Australia, Rio Tinto’s force majeure at its Australian refineries and the second-quarter disruption at Nalco in India,” Farida said.
“We estimate around 2 million tonnes of alumina will be affected just from Australia this year and, even assuming no additional disruptions until the end of the year, global alumina output could shrink by about 2.0-3.5%,” he noted.
Farida estimated that “if 16 million tonnes of bauxite were exported out of Indonesia, it would be equivalent to 4-5 million tonnes of alumina, which would essentially wipe out this year’s deficit.”
Fastmarkets calculated its daily benchmark alumina index, fob Australia at $504.29 per tonne on Monday July 1, up by $153.76 per tonne from $350.53 per tonne on January 2.
The index has risen by 43.9% since the beginning of the year because supply issues in Australia, India and Guinea have inflated prices and prompted a vertical rise to Fastmarkets’ alumina index.
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