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Jun 05

Massive production shutdown in China lifts bauxite prices

China-origin refractory-grade bauxite prices have increased for the second time this year as the government ramped up efforts to reduce pollution. Only a tiny minority of plants is still allowed to operate following the environmental inspections, and traders are struggling to find material to fulfil contracts.

Near-complete shutdown of Chinese refractory-grade bauxite production has lifted spot prices for the second time this year, with many traders struggling to fulfil contracts following further environmental crackdowns.

The ongoing anti-pollution controls in China have worsened over the past two weeks, with Beijing shutting down most bauxite mines in Shanxi province, while calcining and processing plants in Shanxi and Tianjin were also impacted.

Only a minority of facilities that meet the strict environmental standards are allowed to continue production, but raw bauxite supply remains scarce due to current mining restrictions, two Chinese producers told IM.

“Problems, problems everywhere I look. The situation in China is getting worse by the day,” one European trader told IM.

“Everybody has been stopped. Nobody is producing because of the environment [team] running around. They are going from plant to plant. They will suspend production until September,” he added.

It is unclear for how long such strict environmental measures will remain in place but many are anticipating the policy to be long-term, as tackling pollution has been identified as as a top priority in 2017 for Beijing.

Following a first round of controls since July 2016, many bauxite production facilities that did not meet the state required standards were shut down.

But ahead of the 13th National Games of China, due to be held in Tianjin and Luoyang in September, authorities have ramped up efforts to clean up the local environment, market participants in China and Europe said.

The local government in Shanxi has rolled out new environmental policies in early May to tackle the pollution caused by local industries, including refractory minerals production.

China-based suppliers spoke of a wide-spread, “crazy” shutdown of facilities that did not meet the environmental requirements.

“Foreigners said it is crazy now in China. We Chinese think so too, but what can you do if the country wants to sort itself out?” one Tianjin-based supplier said.

According to one Chinese supplier, all Chinese plants (factories producing all sorts of products, including bauxite, magnesia and brown fused alumina), have to implement the following:
All operation can only rely on gas or and electricity for energy supply, as no coal or coke is allowed. Plants have to install an external on-line system to monitor dust control, and also to install a monitoring system for flue gas de-sulphurisation in the plants.

“If the three [parameters are not met], the plants [will be] closed until they do. This time it’s not a joke, the government is really doing it,” he added.

Shanxi accounts for the majority of refractory minerals production, supplying most of calcined bauxite in the world, according to market sources.

Earlier this week, IM has reported on the worsening output disruption in magnesia producing region in Liaoning, which is also part of Beijing’s crack down on polluting industries.

Due to the clampdown on mining and smelting industries over the past two weeks, bauxite supply has reduced dramatically, supporting price upticks.

All refractory-grade bauxite prices have increased by $10/tonne over the past fortnight, according to IM’s assessment on 4 May.

Spot prices of 85% refractory-grade bauxite (85% Al2O3/2.0/3.15-3.2/0-6mm) rose to $320-330/tonne on a FOB Xingang basis, while 86% bauxite increased to $330-340/tonne, 87% edged up to $350-365/tonne and 88% climbed to $380-400/tonne.

Supply for higher-grade material, above 86% Al2O3 content, is even tighter, with very little trades reported as buyers were unable to source, according to three traders and one producer.

High-risk business

Furthermore, any spot business for China-origin bauxite would now require full pre-payment before delivery, and there is a high risk that suppliers could still not fulfil the contract, traders said.

“You can’t trust them even if they tell you they have material,” said one European trader.

Another European distributor and Chinese supplier agreed, saying that there is the possibility that the material delivered may not meet the agreed specifications and suppliers could fail to honour contractual agreements at the last minute.

“[The situation] is changing by the minute. The next moment they could say they can’t deliver the stock,” said one Tianjin-based supplier.

Still, many buyers run the risk of missing out on deals if they do not comply with the new cash-payment term. One Europe-based distributor said: “They have to pay quickly. If they don’t pay quickly, the suppliers will sell to someone else.”

Despite the higher prices, many are still struggling to find materials to fulfil annual contracts for 2017, while one Europe-based refractory producer was experiencing delivery delays in April, according to buyers.

The extreme shortage in bauxite supply in the past month has been compounded by some Europe-based traders selling short – agreeing to annual contracts with their customers in end-2016 without securing supply in advance, as they believed prices will remain low due to oversupply, the Europe-based distributor said.

“The problem is all these traders were selling short (…) This is caused by lots of traders who were speculating,” he said.

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