ANALYSIS: Bauxite is hardly the world’s sexiest commodity, but recent disruptions to the aluminium supply chain have put this rust-red ore in the spotlight.
ANALYSIS: Bauxite is hardly the world’s sexiest commodity, but recent disruptions to the aluminium supply chain have put this rust-red ore in the spotlight.
The raw material behind alumina (which, as the name suggests, is crucial to aluminium production) has garnered plenty of attention as a price hike squeezes the market and economists forecast an aluminium deficit.
Usually, alumina costs account for between 30 and 35 per cent of the aluminium production pie. However, the cost of this critical ingredient has more than doubled in the last 12 months, skyrocketing to US$645 a tonne in October.
Alumina prices are on the up – and that’s good news for bauxite. Credit: ING Research
So while aluminium producers once had to allocate a third of their budget to alumina costs, the recent price spike has seen that allocation jump to more than 50 per cent.
Throw in increased demand from China and a growing appetite for aluminium amid the green energy transition, and you’ve got all the ingredients for a sustained price hike that’s pricked up investors’ ears.
China spearheads demand
It’s rare for bauxite to be this en vogue, mainly because the ore is so firmly tied to aluminium operations that it flies under the radar.
But this rather unfashionable commodity is in high demand in China, which is far-and-away the world’s biggest aluminium producer.
That title has also made the superpower a major bauxite customer, but inventory shortages among China’s major trading partners have sent prices soaring.
Take Guinea and Brazil, which have made the news for their own supply chain disruptions in recent months.
Or India, where operations at an alumina refinery were disrupted by the collapse of a tailings pond.
There’s been more bad news out of Australia, where output suspensions and Alcoa’s plans to shutter its Kwinana alumina refinery have only added fuel to the fire.
This series of unfortunate events points to further supply crunches, but it’s not just China that will be affected.
Rusal – the largest aluminium producer outside of China – recently flagged it would temper production by up to 500,000 tonnes amid the alumina price spike.
The aluminium giant, which generated roughly 3.8 million tonnes of the silvery-white metal in 2023, sources more than a third of its raw material supplies from the open market.
With demand poised to outstrip supply well into the new year, Goldman Sachs has upped its aluminium price target to US$2,700 per tonne for 2025.
Who’s picking up the slack?
Looking ahead, the aluminium market needs solutions to two key issues – bauxite supply and alumina refining – to meter prices and meet growing demand.
In Australia, the bauxite market may be geographically diverse, but production is overwhelmingly controlled by four major players – three of which are major multinational miners.
Rio Tinto, Alcoa of Australia, South32 and Metro Mining together generate around 30 per cent of the world's alumina feedstock across six projects in Western Australia, Queensland and the Northern Territory.
There are four major players in Australia's bauxite industry. Credit: IBISWorld
However, Australia's current output is not enough to stem global bauxite supply concerns.
Eivind Kallevik, chief executive at Norwegian aluminium producer Hydro, told Reuters that he doesn’t see an immediate end to the alumina market’s tightening.
However, the CEO did flag that new alumina refineries planned for Indonesia and India will add more tonnes to the market – a move that will eventually ease supply constraints.
China is also heavily invested in shoring up bauxite supply, primarily in major producing countries like South America and Australia.
Back in November, Chinese mining company Chinalco flagged it could front upwards of US$400 million to support mining in Suriname – a move that could bring up to six million tonnes of bauxite online each year.
Closer to home, however, Australian Aluminium Council CEO Marghanita Johnson believes domestic bauxite supply is an issue of ‘if’, not ‘when’.
“While Indonesian refineries are set to expand alumina capacity by six million tonnes over the next five years, Australia faces mounting challenges, including rising capital, labour and energy costs, compounded by lengthy regulatory approvals,” she said.
Beyond the regulatory red tape, South32 boss Graham Kerr claims that conditions proposed by the Environmental Protection Authority (EPA) also threaten alumina businesses.
Speaking to investors after the industry giant shaved $830 million off the value of its Worsley Alumina assets in August, Mr Kerr said would look very seriously at closing Worsley – which employs 2,500 staff and contractors – if the proposed conditions were not changed.
“We would be looking to take a very hard stand if we don’t see progress from the WA government on this,” Mr Kerr said.
According to Ms Johnson, one of the greatest cost increases expected over the next five years will come from delays in environmental approvals, limiting access to bauxite for domestic alumina refineries.
“Indonesia can approve and build an integrated bauxite mine and alumina refinery faster than Australia can approve a bauxite mine,” she said.
Looking ahead, Ms Johnson acknowledged aluminium’s inclusion on Australia’s Strategic Mineral List but stressed that policy support is essential to securing the metal’s future.
“We do not want aluminium to become the new nickel, which until early this year was also considered a strategic mineral,” she said.
The government’s decision to move it to the Critical Minerals list in February was too little, too late.”
“In the past 18 months, three alumina refineries have been impaired and one has been curtailed – we need the government to act.”
