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“In the first half of 2020, the price of Chinese imported bauxite was quite low as the freight rate was dragged down by the plunging oil price. In the second half of the year, we expect the freight rate to increase on the back of recovering oil prices and therefore the cif price for Chinese bauxite should also increase,” Cao said on the topic of Chinese refinery growth and domestic outlook during Fastmarkets’ International Aluminium Conference.
Movements in the cif China bauxite price are heavily influenced by changes in the freight cost, which normally accounts for 40-50% of the total price due to a relatively static fob bauxite price in Guinea.
Fastmarkets’ monthly assessment of the bauxite, fob Kamsar, Guinea price stood at $34 per dry metric tonne unit (dmtu) on September 17, unchanged from the month prior. The price was at $36 per tonne on January 16, while the year low stands at $32 per tonne as of on June and July.
Fastmarkets does not currently price the cif China bauxite market due to non-unified quality specifications, but bauxite market participants quote mainstream prices for 40-60% alumina-contained imported bauxite from Guinea at $42-43 per tonne recently, compared with $50-55 per tonne at the beginning of this year before the oil price plunged.
“Freight costs could reach as high as $25 per tonne but it kept at $15-15.50 per tonne recently following a relatively lower oil price,” a market source told Fastmarkets on Tuesday.
The oil price lost significant value at the beginning of March when Saudi Arabia, the world’s largest oil supplier, launched an oil price war with Russia after failing to reach an agreement on oil production.
Brent oil plunged to $28.20 per barrel on March 18, the lowest since February 12, 2016. It has since recovered to $42 per barrel on September 22, but it is still 30% lower than $60 per barrel at the beginning of 2020.
Meanwhile, the oil futures market also plummeted on April 20. The May futures contract for West Texas Intermediate (WTI) crude oil fell as low as minus $37.63 per barrel, the first time ever that the price of the commodity has entered negative territory.
The price collapse was due to the Covid-19 pandemic, which created unprecedented demand destruction at a time of oversupply, leading to extremely volatile price moves and a market awash with physical oil.
Import demand outlook “We believe Chinese bauxite imports are set to rise to 115 million tonnes in 2020, as new and old refineries in the country are adjusted to process imported bauxite in their alumina production,” Cao said at the conference.
According to China customs data, the country imported 69.34 million tonnes of bauxite in January-July 2020, up 10.6% from 62.70 million tonnes in the same period of 2019. Total bauxite imports in 2019 reached 100 million tonnes in 2019, of which 44 million tonnes were from Guinea and a further 36 million tonnes were from Australia.
Cao estimates Chinese’s bauxite imports in the second half of this year will decline slightly compared with the first half of 2020 mainly due to seasonal production factors, while China’s overall bauxite imports this year will still be more than the year before.
Guinea’s mining operations are typically restricted during rainy season, which normally occurs between May and October, and this is expected to reduce bauxite supply during that time.
Due to different metal specifications between domestic and imported bauxite, Chinese alumina refineries need to adjust their operations to process imported bauxite. According to market sources, nearly 44% of domestic alumina refineries used imported bauxite in 2019, while the percentage continues to increase in 2020 so far as alumina producers accelerate their adaptation of idled capacity amid lower alumina prices.
This increased desirability of imported bauxite will be a driver of the cif China bauxite price in 2020, Cao said. But a recent downtrend in China’s domestic alumina price in the past month due to oversupply status is adding some uncertainty to the outlook of the imported bauxite price, Cao added.
“We expect both China domestic and imported bauxite prices to continue to be affected by alumina prices. If alumina prices have a good performance in H2, that should also provide some support to bauxite prices. On the other hand, if alumina prices stay at low levels, that should put pressure on bauxite prices as alumina producers may negotiate down their raw material costs to keep their own profit margins,” Cao said.
Fastmarkets assessed the alumina metallurgical grade, ddp China price at 2,280-2,310 yuan ($337-341) per tonne on September 17, unchanged from the previous week on quiet market conditions.
The price entered a downward trend after hitting a four-month peak of 2,430-2,490 yuan per tonne on July 16, supported by a strong Shanghai Futures Exchange aluminium price, which hit a three-and-a-half-year high of 15,185 yuan per tonne on July 13. The contract closed at 14,525 yuan per tonne on September 22.