Alumina refineries and smelters making the white metal across the continents are increasingly feeling the need for new sources of bauxite, writes Kunal Bose. This is because recovery from many operating mines of high quality bauxite lending itself to easy, energy efficient digestion in alumina refineries is slowing down. To add to the concern of refineries and smelters worldwide, particularly in China, Indonesia is putting a ban on exports of 14 minerals, including bauxite, with an exception for miners who will create local processing facilities. Earlier this year, the Indonesian Mining Association estimated that the restriction — to take effect from 2014 — might lead to contraction of bauxite and nickel ore exports by as much as 75%. Indonesia’s bauxite exports in 2011 were about 40mt (million tonnes) and most of that were destined for China.
The fear among bauxite importing countries is that the Indonesian move may have a domino effect with some other exporting nations striking an identical stance. Future supplies of bauxite will also be constrained by inadequate new investments in exploration, prospecting and opening of new mines. This, however, is of little surprise since aluminium is trading below the psychologically important level of $2,000 a tonne. In sympathy, the prices of alumina and bauxite — derived finally from rates at which the metal is traded — too are down. According to industry officials, over 30% of the aluminium smelters are today in the red, calling for production cuts.
Environment protection and guarding the interest of indigenous and tribal populations in places where bauxite deposits are generally found enjoy top priorities of governments, thanks largely to sustained campaigns by civil societies and international organizations, including UN offshoots. Consider the case of India where from identification of bauxite deposits to winning leasehold over areas to be mined and finally getting a host of environment and forest clearances are so frustratingly time-consuming that bidders run the risk of being worn out of patience. This precisely has happened with Raykal Aluminium, a special purpose vehicle of India’s engineering major Larsen & Toubro and Dubai Aluminium Company (Dubal), which following the grant of prospecting licences for two bauxite mines in Orissa in 1992 has not made any progress in opening the mines and therefore, its proposed 3mt refinery and a likely smelter further downstream remain a non-starter.
Whatever the reasons for a bauxite mining-cum-refinery project of Raykal’s kind of magnitude, to claim an investment of well over $1bn getting stalled for nearly two decades is a commentary on the state of the mining sector in India per se, says analyst Dilip Satapathy. “Have you seen the opening of a major bauxite or iron ore mine in our country in recent years? Delays in giving access to promised iron ore mines to some world leaders in steel, including the largest of them all (ArcelorMittal) and also difficulties in land acquisition for steel plants are standing in the way of the creation of massive greenfield capacity. Or take the case of Vedanta Aluminium, which, in the hope of being able to mine bauxite in Orissa’s Niyamgiri hills, went ahead and built a 5mt refinery in phases at close by Lanjigarh and a 1mt smelter plus a captive coal-fired power complex at Jharsuguda. It was then stopped in its tracks to open a mine there,” he says. Vedanta as a result is required to source bauxite from different places to run its present 1mt refinery. But in the process, the bauxite procurement cost has spiralled to an extent that Vedanta instead of becoming part of the lowest cost quartile of the world aluminium industry finds itself as a high-cost producer of the metal.
A reprieve has now come Vedanta’s way with it acquiring 24.5% Dubal ownership of Raykal with prospecting licences for bauxite mines at Sijumali and Kurumali of Rayagad and Kalahandi districts, respectively of Orissa. According to the Orissa Directorate of Geology, the licence areas are holding bauxite deposits ranging from 250mt to 280mt. The resource at Sijumali and Kurumali is rich in alumina content with low traces of silica allowing easy digestion in refinery. In a filing with the US regulator SEC,Vedanta says it retains the right to acquire the entire 100% of Raykal over a period of time “subject to certain milestones being achieved.” An official of Orissa government mines department told DCI that if “things move well with Vedanta replacing Dubal in Raykal JV and now that an end-use plant in Vedanta’s Lanjigarh refinery is in place, we should be able to upgrade prospecting licences into a mining licences. Ideally, bauxite mining at Sijumali and Kurumali should start in a couple of years, provided Raykal gets forest clearances from the central government.” The breakthrough, which is coming at some major financial cost does not mean that Vedanta
will stop pursuing the Orissa government for compensating it with bauxite mines for the virtual loss of Niyamgiri hills deposit.
Any group, government owned or private trying to open a bauxite mine in India will have its patience tested almost to the limit. For instance, after a long 20-year wait, the largely government owned National Aluminium Company Limited is finally likely to gain access to a 75mt bauxite deposit at Pottangi in Orissa but subject to it agreeing to develop areas peripheral to mining sites and payment of a water cess, which miners are not ready to cough up. If finally on resolution of all issues relating to environment and forest clearances and rehabilitation of people to be displaced, NALCO is able to open a mine at Pottangi, then it will become easy for it to go ahead with implementation of the third phase of its expansion programme covering raising of alumina capacity to 2.9mt from 1,575mt and smelter capacity to 570,000 tonnes from 460,000 tonnes.
Analyst Kirti Pujara says “seeing the travails of Vedanta which in the belief that opening of mines at Niyamgiri hills would not be a major issue went ahead with building a refinery and a smelter, future investments in aluminium will materialize only when investors are left in no doubt about their being able to open and run bauxite mines.” That is why the commitment by Gujarat Mineral Development Corporation, a state government owned mining group, that it would make annual supply of 3mt of bauxite from Gadshisa and surrounding mines is encouraging NALCO to plan an investment of around $2.5bn to build a 1mt refinery (first phase) and a 500,000-tonne smelter in Gujarat. GMDC managing directorVS Gadhvi says,“till now bauxite mined in Gujarat is sold to buyers outside the state. But henceforward, the mineral will be locally processed for Gujarat to benefit from value addition. And then there is local job creation.” Incidentally, for this integrated aluminium venture, GMDC preference fell on NALCO over Aluchem of the US, Russian Rusal, Dubai Aluminium and some Indian groups.
Besides the increasingly strict conditions that miners are required to fulfil before they could open a bauxite mine in India, they now have to contend with threats from Maoist bands roaming the mineral rich zones. To give one example, NALCO was awarded prospecting rights in Guden and KR Konda blocks with over 80mt of bauxite reserves so that it could build a 1.4mt refinery, but in the face of Maoist threats and disturbances, the project is to be kept on hold. To add to the distress of aluminium industry, an Indian government minister has given a call for a “ban” on opening of new bauxite mines in Orissa, which alone holds some 55% of the country’s total bauxite reserves and Andhra Pradesh. All this is sad. In spite of India owning bauxite reserves of 3.5bn tonnes making it the fifth largest owner of the mineral in the world, no new major bauxite mine has been opened in recent years. In fact sensing the hunger for bauxite that the new smelting capacity in the pipeline will have, Alcoa of the US has started talking with Indian aluminium companies to sell a portion of its surplus alumina. The US company produces around 16mt of alumina, which is a lot more than feedstock requirements of its smelters. Therefore, it is a net seller of alumina. Alcoa India CEO Vishal Seth says,“there is a renewed focus on India. We sell about half of our production of alumina to various companies around the world on annual contract basis. We plan to bring some of our Australian alumina production here.” Aloca is reportedly discussing imports of alumina with Vedanta Aluminium and Hindalco, the two leading producers of the white metal in India and with large smelting capacities under
construction. If Alcoa could make a breakthrough with alumina sales in India, then other producers of the intermediate chemical with mines and refineries in Australia will target India as a future market. Some consultancies have forecast that the world demand for bauxite will continue to grow 6.9% a year from 220mt in 2011 to 750mt in 2030. No doubt Guinea — sitting at the top of the table of countries endowed with bauxite — will have to be the source of major part of incremental supply. The hunger for foreign origin bauxite will continue to be felt most in China, which, according to its Nonferrous Metals Industry Association, was 47% dependent on imports of the mineral in 2011. This is because in spite of it fast exhausting its own bauxite resource, China remains relentless in stepping up production of alumina. Chinese alumina production was up from 23.42mt in 2009 to 29.36mt in 2010 and to over 37mt in 2011. No wonder then that the China Power Investment Company is involved in the development of a bauxite mine, an alumina refinery and a power complex in the Boffa region of Guinea at an initial cost estimate of over $6bn. The project is to be built in two stages, each consisting of 4mt capacity.
Notwithstanding some major bauxite cum alumina projects in the pipeline in Guinea the fact remains total investments in new mines do not match the country’s high bauxite endowment. New projects include Guinea Alumina Corporation’s 10mt mine and a 3.3mt refinery and Guernsey incorporated Alufer Mining having received access to deposits of 10bn tonnes is targeting bauxite production of 10mt by 2015-16. Alliance Mining Commodities is engaged in development of its flagship Koumbia project in the Guinea’s Boke belt. The Koumbia project has leasehold right over 1.5bn tonnes of bauxite deposit. The 10mt of highly cost effective mineral to be mined here annually starting 2015 will be sold primarily to refineries in Europe and new refineries in the Gulf and North America. That Guinea is abundantly rich in bauxite is common knowledge. But the dark horse is Vietnam whose prime minister in November 2010 claimed that his country was sitting on 11bn tonnes or more of bauxite deposits. The world is waiting for a formal confirmation of the riches of Vietnam.
Brazil’s aluminium consumption outstrips production for the first time in 30 years
For the first time for 30 years, less primary aluminium is being produced in Brazil than is being consumed there, writes Patrick Knight. As a result, more than 100,000 tonnes of primary aluminium had to be imported last year, at a cost of $283 million, compared with the 17,000 tonnes which arrived in 2010.
A total of 1.44mt (million tonnes) of primary aluminium were produced in Brazil last year, 220,000 tonnes less than four years previously, while 1.5mt of primary was consumed in 2011, 375,000 tonnes more than in 2008.
The 486,827 tonnes of primary aluminium exported last year, most under long-term contracts to other mills belonging to manufacturers Norsk Hydro, BHP and Alcoa, was 60,000 tonnes less than had been shipped in 2008.
About 140,000 tonnes of aluminium products were also imported last year, including 27,000 tonnes of cable for the transmission of electricity, compared with only 7,000 tonnes of cables in the previous year. At least 60,000km of new long-distance transmission line are to be built in Brazil in the next few years, some of it by the Chinese-owned ‘State Grid’ which will almost certainly aim to use imported aluminium in the lines it builds.
Already, large quantities of window frames and other fittings are imported from China which, although a major importer of bauxite as well as alumina, exports as many higher-value finished products as it can.
It is still not clear whether Alcoa, one of the four large smelters in Brazil, the others being Norsk Hydro, BHP and Votorantim Metals, previously CBA, will go ahead with its threat to close down one of its two plants in Brazil. One is at Pocos
de Caldas, in Minas Gerais state, the other the Alumar mill in Maranhao, a joint venture between Alcoa and BHP.
Alcoa claims that, because electricity costs far more in Brazil than anywhere else, it is not economical to keep plants going, let alone build the new smelter which Alcoa has been considering for several years now.
No new smelter has been built in Brazil for 20 years, despite the country’s huge reserves of high-quality bauxite and large unused hydro power potential in the Amazon region, where most reserves of bauxite are.
Under pressure from Alcoa, the government had promised to publish a plan for the aluminium industry in March this year. This was then postponed until June, and there is still no sign of it. The government has promised to take steps to cut the cost of electricity, which Alcoa claims costs $80 per MW hour in Brazil, although the other smelters say it is less than $60 per MWh.
Alcoa, like all the other smelters in Brazil, is largely self-sufficient in electricity, having spent more than US$2 billion on building power stations of its own in the past few years. So the threat to abandon Brazil — one of the few large aluminium- producing countries in the world which is politically stable and predictable — is probably only a bluff.
Whatever happens to aluminium, Alcoa and the other companies, continue to develop their reserves of bauxite and more importantly, to make and export more alumina.
The export of 7.28mt of alumina earned Brazil US$2.2 billion last year, almost $500 million more than in 2010. Exports of alumina earned $500 million more last year than exports of primary aluminium did.
Being such a low value product, exporting bauxite is far less attractive and most of the 6mt Alcoa produced from its new Juriti mine alongside the Amazon River was used to make alumina in Brazil, or for export to its mills elsewhere.
The large companies which make aluminium and alumina in Brazil, or mine bauxite for that matter, all have their eyes on China’s long-term needs.
China, which is the world’s leading producer of aluminium, now makes 20mt of the product each year. Very little primary product is exported, however, as the government encourages manufacturers to export only high-value products.
Analysts anticipate that China will need about 30mt of aluminium in five or six years’ time.
Because the industry is dependent on high-cost and heavily polluting energy, notably coal, it is anticipated that many uneconomic plants will be forced to close in the next few years. China may then become a net importer of aluminium and alumina, as well as of bauxite, 40% of which is already imported.
Unlike BHP, which is a very diversified company, Alcoa makes almost exclusively aluminium, so it has to get things right.
With China soon expected to become a major importer of aluminium and alumina, it is not surprising that Alcoa is reluctant to cut production in Brazil, and the government there is probably well aware of this.
Apart from the very positive prospects for cables, the motor industry continues to grow fast, with three million cars sold in each of the past three years. At the moment, less than 50kg of aluminium are contained in the average car made in Brazil, less than half that used in cars made in the United States.
However, as pressure to make cars more fuel efficient increases, it is expected that incentives aimed at cutting the weight of vehicles will be introduced, which can only aid aluminium.
The demand for aluminium cans, which usually grows considerably faster than the increase in GDP, seems insatiable as well. After having to import more than a billion cans in 2010, which as the industry says, is like importing air, output is to be raised to 25 billion in a year or two’s time. A staggering 98% of all the cans sold in Brazil are recovered for re-cycling by an army of collectors estimated to total more than a million, so most of the 400,000 tonnes used each year to make cans is already in circulation.
Brazil is a world leader in all types of re-cycling as well, with 34% of the total used recovered. This also means demand for fresh metal is subdued. But with living standards rising steadily, and unemployment now at an all-time low, whether this comfortable state of affairs for the industry will last much longer, is questionable.