Fight Between Bauxite Enterprises Over the Import Channels

China’s foreign dependence on bauxite is currently 60%, nearly the same as iron ore. China’s total imports of bauxite were 44.8449 million tons in 2011, up 49.73% year-on-year, the highest level over the same period in history.

The Chinese electrolytic aluminum and aluminum oxide enterprises including Aluminum Corporation of China Limited, China Power Investment Corporation, Shandong Xinfa Aluminum Group and Sichuan New Hope Aluminum Company will experience major challenges.

The long-time rumor that Indonesia may ban the export of bauxite has unfortunately become a reality. JeroWacik, the Minister of Energy and Mineral Resources of Indonesia has recently signed a ministerial-level regulatory decree,which confirms that the export of metal ores including nickel ore will be banned as of 2014.

This makes the situation even worse for Chinese electrolytic aluminum enterprises that are already in difficulties. An analyst from Antaike told the First Financial Daily that China imported 35.79 million ton bauxite from Indonesia in 2011, which amounts to 11.93 million ton aluminum oxides when calculated by the ratio of 3:1, accounting for 30.6% of the output of aluminum oxides in China in 2011. These aluminum oxides can be converted to 5.97 million ton electrolytic aluminum, accounting for 30.4% of the output of electrolytic aluminum in 2011.

According to the said analyst, from the current point of view, China’s top country to import bauxite from is still Indonesia and the import volume will continue to increase in 2012.

China’s foreign dependence on bauxite is currently 60%, nearly the same as iron ore. China’s total imports of bauxite were 44.8449 million tons in 2011, up 49.73% year-on-year, the highest level over the same period in history.

In addition to the high foreign dependence, the import concentration is relatively high. The customs statistics show that China imported bauxite mainly from countries such as Indonesia, Australia and India in 2011. The bauxite imported from Indonesia accounted for 79.65%of the total imports, up 56.60% year-on-year.The bauxite imported from Australia was 8.3992 tons, accounting for 18.73% of the total imports, up 27.51% year-on-year. The bauxite imported from India was 625,400 tons in 2011,accounting for 1.39% of the total imports, up 22.81% year-on-year.

The said analyst said that the rise in total bauxite imports in 2011 was mainly due to two reasons. One is the new construction and expansion of aluminum oxide enterprises in Shandong. The other is that the enterprise outside Shandong begins to change the production line and use imported ores as the price of domestic bauxite products declines dramatically. “Now,even Henan enterprises buy bauxite from Shanxi.”

What’s worth noting is that the domestic aluminum oxide enterprises that use imported bauxite mostly adopt the low temperature Bayer process and those that use domestic bauxite mostly adopt the high temperature Bayer process. Transforming from the low to high temperature Bayer process requires a large amount of money and labor in the initial stage.In case of any unfavorable situations, the enterprises will be inevitably affected to a large extent in a short period.

“The information that Indonesia may ban the export of bauxite has long caught our attention.This is indeed a problem and requires enterprises to explore other sources of import.” Jia Mingxing told this newspaper, “For example,the bauxite that Japan imports from one country generally accounts for no more than 10%.”

The competition between aluminum oxide enterprises is ultimately that of bauxite resources.According to Jia Mingxing, the most important method is to make more investment in overseas bauxite as well as put more efforts in discovering new mines in China. Having realized the difficulty in importing bauxite, a large number of Chinese electrolytic aluminum and aluminum oxide enterprises attempted to invest in overseas bauxite years ago.

Private enterprises such as Chongqing Bosai Mining and Shandong Xinfa Group have long prepared investment in overseas bauxite and made some progress. China Aluminum Corporation (CAC) and China Power Investment Corporation (CPIC), the top two domestic electrolytic aluminum enterprises in China have also made foreign investment. However, CAC failed in investing in the bauxite in Australia and CPIC’ projects are making a slow progress.Xinfa Group has invested in bauxite mines of nearly 6,000 km2 in Indonesia, Fiji and Australia. It has obtained the mining certificate in May 2011 for its resource development project in Fiji and began to mine bauxite at the end of 2011. Its bauxite project in Indonesia mined 1 million ton ores and shipped back 800,000 tons in 2010 and the project II has started.

Things didn’t go well for CAC. Last July, CAC(601600.SH) announced that the government of Queensland, Australia had terminated their discussion about the exploration of bauxite. Before that, CAC had spent over 5 years on this project since the bidding. Besides, CAC is also actively promoting its multi-agricultural aluminum oxide project in Vietnam, the bauxite exploration project in Guinea and bauxite development project in Indonesia, but hasn’t entered the investment stage. And the Simandou iron ore project is only included in CAC’s proposed projects for the next 3 years.

The situations are better for CPIC. The Office of the President of Guinea declared last August that CPIC intends to invest 6 billion USD in development local bauxite and aluminum oxide ores. CPIC spent three years exploring the resources and didn’t complete the project assessment until last late July

However, CAC remains the enterprise with the most bauxite resources. A high official from CAC told this newspaper that although CAC failed in investing in bauxite in Australia, it will continue the overseas exploration and investment.