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Ene 08

Bauxite, fused alumina market in supply limbo in Q4

Spreads among some bauxite grades are widening while BFA, WFA prices remain stable on limited demand, although participants are concerned over supply flows from China in 2019.

The market for calcined bauxite and fused alumina carries on in a state of limbo at the beginning of the fourth quarter due to a continued lack of clarity on the extent of the supply issues in China.

Participants are facing hard questions about issues of continuity of supply from China amid a slowdown in demand from consumers in Europe and other areas.

Limited availability remains a problem that is ever present as much as it is proving difficult to quantify. This is resulting in wider spreads on some market prices – particularly for bauxite – while other grades remain firm or adjust on slow trading.

Fastmarkets IM assessed the price of calcined bauxite 85% at $400-435 per tonne fob China on Thursday October 18, compared with $420-435 per tonne previously.

Meanwhile, the price of calcined bauxite 86% stood at $435-450 per tonne fob China on Thursday, adjusting from $435-445 per tonne earlier.

Finally, the price of calcined bauxite 87% remained unchanged at $450-480 per tonne fob China, and the price of calcined bauxite 88% also held at $490-500 per tonne fob China.

Most data points collected point to a widening of the spreads, as in the case of the 85% and 86% price, and are testimony to the lack of clarity the industry is seeing at present.

“You hear numbers that are all over the place right now,” a consumer commented.

Limited availability

The majority of participants in contact with Fastmarkets IM across the supply chain stated they believe availability of volumes at the moment to be tight, for both calcined bauxite and fused alumina.

This is thought to be the consequence of the latest series of temporary closures and restrictions that mining operations and processing plants have been facing during August-September in China’s Shanxi and Henan provinces, the production hubs for bauxite and fused alumina respectively.

With kilns across Shanxi either shut or operating at reduced capacity between August and September as part of the government’s ongoing crackdown on pollution, new production of calcined bauxite has been low.

“Under normal conditions, the market would need about 2.5-3.0 million tonnes of bauxite in a standard year, and 1 million tonnes of BFA [brown-fused alumina]. At these production rates, I would be surprised if output were more than half of that,” one seller said.

After covering domestic demand, the diminished bauxite output meant lower availability for the export market, as well as reduced supply of bauxite feedstock to producers of brown-fused alumina in Henan. Together with Henan’s own closures, temporary or otherwise (some Fastmarkets IM sources estimated that as much as 50% of producers in Henan are currently not operating), this has slashed BFA production in the province.

“BFA output has been seriously down,” one market source said.

While there are some volumes of bauxite from Guizhou province being shipped to Henan to feed local alumina smelters, these are deemed to be “negligible” compared with standard volumes from Shanxi, which is the larger producer.

“It’s not looking good,” one seller said. “I know we’ve been saying this for months, but it’s hard to see how any of this could improve in the near term.”

Fastmarkets IM assessed the price of refractory grade brown-fused aluminaat $770-780 per tonne fob China on October 18, unchanged week on week.

Similarly, the price of abrasive grade BFA has held at $870-900 per tonne fob China.

The price of refractory grade white fused alumina (WFA) remained stable at €790-830 ($911-957) per tonne cif Europe.

Slow demand

When it comes to consumers, some sources point to what they described as a disconnect between this situation in China and buyers’ supposedly “relaxed” attitude.

“I don’t think many users are really aware of the potential long-term effect of what is happening in China right now,” one importer said.

In the words of a European distributor, “we keep hearing about the closures in China and we do believe that volumes are lower. But if you ask for an offer, you will always get a few. That perpetuates the confusion.”

Most participants canvassed over the past two weeks reckon available material comes mainly from existing stocks in China, while new production accounts for a minor amount.

Meanwhile, demand is currently low for most parts of Europe because major buyers are said to be covered for the rest of this year and the first part of 2019.

“Most of my customers have at least a six-month coverage ahead at this point,” a seller said.

Fastmarkets IM is aware that some pockets of fourth-quarter spot demand exist in areas of Europe at the moment, but this is thought to be limited to specific areas.

North America had been importing heavily in the past few months, with the threat of sanctions on Chinese raw materials looming, but trade flows are reportedly stabilizing in this quarter.

Quality issues

A number of market participants in conversation with Fastmarkets IM flagged that quality issues with available material may arise. These can include off-spec material – labeled as a certain purity although the actual grade may be lower – or product with high moisture or high impurities, such as too-high silicon or iron content.

Additionally, at least three participants noted that some blending may be taking place, specifically for bauxite.
“When perception is that availability is limited, you will always have those that take some leftover stock, blend it with some new volumes of lower-grade stuff from a few places,” one trader said, although he added that this tends to happen with small cargoes.

Air quality: winter is coming

As for China, the reduction in supply is likely to persist due to its close connection with Beijing’s environmental efforts.

The crackdown on pollution from heavy industry, and the environmental focus on the part of the government, could be set to continue.

Pollution indicators for industrialized areas remain high.

The air quality index (AQI) for Luoyang, one of the main cities in Henan province, stood at 139, or “unhealthy”, on October 16. In Yangquan, Shanxi province, the AQI was at 170, also classified as “unhealthy”.

Both indices showed breathable levels of fine particles (such as PM2.5 and PM10) at dangerous levels throughout most of the day.

Beijing has made it clear time and again over the past two years that curbing industry pollution on the local environment is a government priority.

Pollution levels in winter are normally higher than in the summer months due to the bad weather conditions and lower temperatures. As such, this year the government is imposing, for the second consecutive year, a series of restrictions on industrial operations in key provinces for mineral production, including Shandong, Liaoning, Shanxi, Henan and others. Last year, this meant almost no production between mid-November and mid-March.

If the timeline that was circulated in the summer is to be believed, the shutdowns are due to be implemented from the end of October or early November – just weeks from now.

“With winter closures about to start, and most operations running at low capacity in Shanxi and Henan, availability of [minerals including] bauxite and BFA is going to get even tighter in the coming months,” one supplier said. “Winter is coming.”

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