November 21, 2014 / 7:30 AM / 5 years ago

Soaring Malaysian bauxite exports a "game changer" for China supply

KUALA LUMPUR/SYDNEY, Nov 21 (Reuters) - Bauxite mines are springing up in Malaysia and shipping ever-increasing amounts of the raw material used for aluminium to China, helping fill a gap since Indonesia banned ore exports in January in a bid to encourage value-added processing at home.

China will need around 130 million tonnes of bauxite next year to feed its fast-growing aluminium industry and must import about 36.8 million of that, according to consultancy CRU.

“Definitely bauxite imports from Malaysia will increase significantly next year,” said Wan Ling, an analyst with CRU in Beijing, forecasting the country’s shipments to China could reach 10 million tonnes.

That would be a huge jump: Malaysia supplied just 1.27 million tonnes to China in the first nine months of this year, although that was 12 times more than the 105,000 tonnes shipped in the same period of 2013.

Malaysia could prove critical for China’s producers as they scout out alternatives to Indonesian supplies.

“More and more alumina refineries in China are buying bauxite from Malaysia. They have done some investment in terms of shipping capability and also infrastructure trying to get bauxite ... Malaysia looks like a game changer,” Ling said.

Kuantan, a district in eastern Peninsular Malaysia facing the South China Sea, is a hot spot for new bauxite mines. Ideal Mineral Resources opened one a few months back, director Johnny Wong told Reuters.

Wong said it was producing about 4,000 tonnes a day and planned to raise output to 10,000 tonnes in the first quarter of next year, once monsoon rains subsided.

“A hundred percent goes to China. Not only from us, but from our area in Kuantan,” he said, adding that several Chinese firms had also started operations recently, both in mining and in buying from mines in the area.

Some of the miners were taking advantage of underused infrastructure such as ports put in place by the depressed iron ore sector, industry sources said.

CALCULATIONS

To offset the absence of Indonesian bauxite, China has also stepped up imports of alumina, a semi-processed form of bauxite, from countries such as India. Alumina imports have risen by 58 percent so far this year to 3.9 million tonnes, as bauxite imports have fallen 47 percent.

Analysts said it was too early to say how much of the bauxite gap Malaysia may fill in future and that China may still fall short of its needs from the second half of next year.

“It’s very difficult to say exactly what the supply equation is,” said Paul Adkins at Beijing-based consultancy AZ China, estimating China had around 34 million tonnes of bauxite in stockpiles.

“Clearly domestic bauxite production is growing strongly ...(plus) all the countries that are contributing a little bit more this year. But now there is this dark horse (Malaysia) emerging, which I don’t think many foresaw.”

The bauxite shortage had threatened to curb an expansion of China’s aluminium capacity, just as more of its aluminium or semi-finished products found their way onto global markets.

China’s aluminium production is expected to rise to 30.65 million tonnes next year from around 28 million this year, according to CRU figures, as some forms of the metal are exported in response to severe supply strains outside China.

Western markets are likely to be in deficit this year after producers shut capacity in response to low prices.

China imposes a 15 percent export tax on primary aluminium, making it expensive, but exports of semi-finished products, which do not attract export tax, have risen by 9.8 percent this year to 2.5 million tonnes.

Citi said last month that bauxite prices had traded around $60.50 a tonne since April and that any rise was unlikely to affect aluminium prices since power makes up about half of production costs. (Writing by Melanie Burton in Sydney; Editing by Alan Raybould)

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