The global demand for bauxite, from which the aluminium smelter feedstock alumina is derived, is likely to rise at an annual rate of 6.9 per cent from 220 million tonnes (mt) in 2011 to 750 mt in 2030. The world is richly endowed with bauxite mineral, distributed across all continents. And, a good portion of that is in the “proved” category.
Even then alumina refineries across the world making do with procurement of bauxite from the market have started experiencing supply constraints. Falling volumes apart, mines subject to exploitation over long periods are yielding bauxite of inferior quality, leading to higher use of caustic soda and energy in making alumina. At least one large alumina refinery in our country, dogged by ill luck, is not finding it easy to procure all the bauxite it needs.
Concerns about shrinking availability of bauxite got heightened when under a new mineral policy, Indonesia slapped an export duty of about 20 per cent on 65 minerals. More ominously, Jakarta has ordained that starting 2014, there will be a ban on exports of bauxite and 13 other minerals so that whatever goes out of the country has got value added to it like in the form of alumina or white metal.
In the interim period, only those companies making commitments to create bauxite processing facilities, either on their own or in partnership with foreign groups, will be allowed to export the mineral. At 40 mt in 2011, Indonesia was no mean exporter of bauxite and as much as 35.79 mt of that went to China. The world’s by far the largest producer of aluminium, China is becoming increasingly dependent on bauxite of foreign origin to feed its alumina refineries, which now account for 37 per cent of global capacity, up from 11 per cent in 2004.
During this period, China’s bauxite imports have risen from three mt to 45 mt. Indonesian export restrictions have now started to bite China. While the country’s biggest aluminium maker Chalco has, as a result, announced a significant cut in alumina production for this year, five others are to restrict production by 10 per cent. China’s bauxite resource is smaller than India’s. But having built alumina refinery capacity of well over 40 mt, the country is left with no option but to go for “very intensive mining of bauxite” and resort to large imports of the mineral at the same time. Last year, China produced over 34 mt of alumina against 29.36 mt in 2010. No wonder as China is fast exhausting its own resource, it is acquiring bauxite deposits in Australia, Canada and Peru. China is now eyeing bauxite deposits in the Mekong region, particularly Vietnam.
Bauxite importing countries are nursing the fear that the Indonesian move may have a domino effect with some other exporting nations striking an identical stance. In this context, an Indian industry official says Vietnam, which is getting ready to spring a major surprise on the world about its bauxite riches, is certainly not aspiring to become an exporter of unprocessed mineral. We will have confirmation of the size of the Vietnamese resource once the country’s department of geology and minerals has completed the study of bauxite and laterite deposits in seven provinces from the central region down to the south.
The official says: “I will think the size of Vietnamese bauxite deposits will not be less than 11 billion tonnes (bt). Has not the Vietnamese prime minister quoted this figure in a statement he made at the National Assembly?” That Vietnam has a clear road map for value addition becomes evident from several bauxite mining-cum-alumina projects in the pipeline. Foreign groups eyeing bauxite properties are nudged into including refineries in the project downstream. But Vietnam first will have to create rail infrastructure between central highlands and the coast some 260 km away.
At this point, investments proposed in mines development are not in alignment either with future requirements of bauxite, specially once the world economy recovers. Prices of bauxite and alumina are derived from rates at which the white metal is traded. The three month LME rate for aluminium is below $1,900 a tonne, rendering well over 30 per cent of the world smelting capacity unviable.
Exercise of discretion by investors in mines development is, therefore, understandable. Under the circumstances, expect investors to be highly selective about mine sites where bauxite is high in alumina content with low traces of silica. Infrastructure in most bauxite rich countries being poor, the natural tendency will be to open mines not far away from the coast. It is not only in India that civil society is keeping a vigil on the social and environmental impact on mines openings leading investors to see if they would encounter “native title land constraints.”
In India’s mining predicament on all these counts, Alcoa of the US is seeing an opportunity to sell alumina here. Its India chief Vishal Seth says: “We plan to bring some of our Australian alumina production here.” Alcoa’s own smelters are using about half of its alumina output leaving it with an export surplus of over eight mt. India could be a market for a portion of that surplus.