Ukraine war, export restrictions rewrite bauxite trade routes

The fallout from Russia’s invasion of Ukraine is changing global trade flows for bauxite, with Brazilian material once again flowing into China and with the introduction of export restrictions elsewhere likely to influence availability through 2023

Since the start of the war in February 2022, many metals producers have sought to review or cut ties with Russian businesses and the impact of these decisions is now playing out in the bauxite sector, with shipments from Brazil traded into China for the first time in several years.

Bauxite and alumina producer Norsk Hydro announced in March 2022 that it would further reduce its commitments with Russian counterparts, building upon a previous statement that said it would “no longer enter into new contracts with Russian counterparts.”

“Hydro has, since the outbreak of the war, not entered new contracts with Russian counterparts,” the company told Fastmarkets. “The contracts related to our bauxite and alumina activities expired in 2022.”

Hydro, has bauxite mines in Pará state in northern Brazil, which produced 10.9 million tonnes of bauxite in 2021, it said in its full year report. It has a 5% share of and a 40% offtake agreement with Mineração Rio do Norte (MRN) which has a bauxite mine in the state at Trombetas, with a yearly production capacity of 18 million tonnes. And when operating at full production capacity, Hydro has a long position in bauxite of 3 million tonnes (assuming MRN produces 18 million tpy)

Brazil produces as much as 36 million tonnes of bauxite annually, making it one of the world’s top producers, along with Guinea in West Africa, which produced up to 87 million tonnes of bauxite in 2021.

According to Brazilian foreign trade statistics, in 2022, Brazil exported 4.2 million tonnes of bauxite, down from 5.28 million tonnes in 2021.

It’s likely that the restart of the Alumar aluminium smelter, at São Luís in the northeastern state of Maranhão in April 2022, which has a capacity of 447,000 tonnes per year, resulted in the reduction in exports of bauxite and alumina from Brazil.

Market participants told Fastmarkets that high freight rates had prevented Brazilian material from trading into China for several years, with the last transactions believed to have taken place in 2019.

But after a 60% reduction in global freight rates, which peaked during the Covid-19 pandemic, some companies have now restarted shipments to China, although others told Fastmarkets that, for them at least, it still appeared to be uneconomical to do so.

“The market is flush with Brazilian bauxite, China is the next best alternative [market]. But while Guinean bauxite can be [loaded onto] Capesize ships, out of Brazil they’re killed by the freight having to ship in [smaller] Panamax vessels,” said one source, adding that new contracts in 2023 had seen more than 1 million tonnes of spare bauxite units available on the market.

One trader expressed surprise at the changing flow of trade, however, citing the higher freight rates seen in 2022 – although he acknowledged that China’s bauxite needs would only continue to grow and that Guinea could only produce so much material.

Another market participant said they had heard of three Brazilian bauxite cargoes trading into China in December 2022, with yet others noting increasing supplies of Brazilian material.

Fastmarkets’ price assessment for bauxite, fob Trombetas, Brazil was $30-35 per dmt on January 19, down from $35-40 per dmt on December 15, amid lower offers and the greater availability of supplies.

A second trader admitted recently exploring the possibility of shipping Brazil bauxite to China and said they had seen others in the market doing the same.

“There is available material in the market from Brazil, because a refinery has reduced the amount of bauxite it takes from [there], but can only replace this with Guinean bauxite,” according to a second source, who also agreed that China was once again starting to import Brazil bauxite.

Elsewhere, global trade flows were also facing increasing trade restrictions, with a ban on Indonesian exports now confirmed by the country’s president Joko Widodo for June 2023 in his bid to step up efforts to process raw materials within the country.

The ban had apparently been confirmed for 2022, having been first announced in 2019 and then delayed due to the Covid-19 pandemic.

Bauxite prices did witness a small move higher in July 2022 over concerns that the ban would come into effect.

The country has already brought in a ban on other metal exports, such as nickel and tin — although this has already faced a backlash from the European Union, which recently welcomed a ruling by the World Trade Organization’s (WTO) that Indonesia’s ban and the domestic processing requirement for nickel ore breaches WTO rules.

China imported 125 million tonnes of bauxite in 2022, with imports continuing to rise in recent years — with imports of 83 million tonnes in 2018, 101 million tonnes in 2019 and 107 million tonnes in 2020 and 107 million tonnes in 2021.

About 15% of these imports for 2021, or 17.8 million tonnes, were from Indonesia, which produced 25.8 million tonnes of bauxite in 2021 (the latest data available).

Bauxite buyers, including those in China, will need to find a new supplier to make up the lost tonnages, with purchases from Guinea likely to increase further, with China currently importing half of its bauxite from Guinea.

“Imports at Chinese refineries are increasing, including from Indonesia and Guinea. The ban happened in the past, but it hadn’t a made a difference in price as there was available bauxite,” the second source said.

“We see a domestic rally, with China [buying] up Guinea bauxite at higher prices. Once that percolates through the system, other prices will move higher after Chinese New Year,” the first source said.

Fastmarkets’ price assessment for bauxite, cif China, was $60-72 per tonne on January 19, its first move higher since August 2022, following increased offers and higher-priced transactions.

Other countries will scrutinize the effectiveness of the Indonesian ban, with Guinea announcing in April 2022 that it will not hesitate to follow the lead of Indonesia in banning bauxite exports if refineries are not built in the country.

The West African country has been pushing mining companies “to fulfil their obligations” to build refineries for bauxite, but so far there have been no announcements on this front.

An expected rise in demand for bauxite from China is also likely to support prices, with many expecting the market to return strongly after the government announced the removal of most Covid-restrictions in the country.

The availability of material is also likely to be lower after Alcoa reported lower shipments, of 43 million dry metric tonnes, in its recent full-year results for 2022, down from 48.1 million dmt in 2021. Its bauxite production in 2022 was 42.1 million dmt, down from 47.6 million dmt in 2021.

It had previously lowered its 2022 bauxite shipment forecast by 2 million dmt to between 44.0 and 45.0 million dmt, due to continuing disruptions in the Atlantic bauxite market and lower demand from refineries in the first half of 2022.

While bauxite is largely traded on long-term contracts, with the trade flows being revised during 2023 and with availability fluctuating, it is likely the market will see more spot trading as buyers come to the market with changing requirements and that could result in some price volatility.

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