UPDATE 1-Malaysia extends bauxite mining ban by another three months

* Will resume issuing bauxite export permits to clear stockpiles

* Impact of extended bauxite ban limited -trader (Adds quotes, details)

KUALA LUMPUR, April 8 (Reuters) - Malaysia will extend its ban on bauxite mining by another three months, effective April 15, in order to clear stockpiles and remove the risk of the aluminium-making ingredient contaminating the country’s rivers, the environment minister said on Friday.

While lower output at the world’s top exporter of bauxite threatens to interrupt supply to the world’s biggest aluminium producer, China, traders expect the impact to be limited given China’s ample stocks of the raw material.

Malaysia’s largely unregulated bauxite mining industry has boomed in the past two years to meet demand from China, filling in a supply gap after Indonesia banned exports, but the frenetic pace of digging has led to a public outcry with many complaining of water contamination and destruction of the environment.

Late last year, bauxite mining was blamed for turning the waters and seas red near Kuantan, the capital of Malaysia’s third-largest state and key bauxite producer Pahang, following which, in January, the government imposed its first three-month ban on mining the commodity.

“The cabinet today agreed to the ministry’s suggestion that the bauxite moratorium in Kuantan be extended by three more months,” said Wan Junaidi Tuanku Jaafar, Malaysia’s natural resources and environment minister at a press conference.

“One reason for the moratorium extension is to clear the stockpile, only then can we clean the stockpile areas. This is so that we remove the possibility of remnants of the bauxite stockpile contaminating the river and sea in the event of rain.”

Existing bauxite stockpiles in Kuantan must be exported before the moratorium can be lifted, Wan Junaidi said, adding that there were 3.6 million tonnes of stocks in Kuantan.

Malaysia had shipped out around 3.5 million tonnes of the commodity to China in December, but exports dwindled to slightly under 1 million tonnes in February.

Malaysia will resume issuing bauxite export permits to help miners clear existing stockpiles, Wan Junaidi said. It had frozen export permits during the first moratorium.

If producers are unable to clear up stockpiles within three months, it is up to them to apply for additional extension, the minister added.

A Singapore-based alumina trader said he expected the impact of the extended ban to be limited due to China’s ample stocks as well as low metal prices on the London Metal Exchange (LME) that have curbed production.

Aluminium prices sank 18 percent last year on a China-driven supply overhang and have not made any gains so far in 2016.

China may hold more than 20 million tonnes of imported bauxite stocks, said Xu Hongping, an analyst at China Merchants Futures. “Their stocks could support five months of production.”

“China has also started importing bauxite from Guinea, which should replace the bulk of demand from Malaysia,” Xu said. (Additional reporting by Melanie Burton in Melbourne and Polly Yam in Hong Kong; Reporting by Joseph Sipalan, writing by Emily Chow; Editing by Himani Sarkar)