FEATURE: China sets sights on overseas alumina projects to unlock bauxite deposits

China's growing reliance on bauxite, a raw material used in alumina production, has pushed the world's top miner to tap alumina refineries globally, with special focus on key supplier Indonesia following an export ban.

China's reliance on imported bauxite has reached 57% and the rate is likely to increase further, according to analysts. Bauxite is processed into alumina, which is used to make aluminum metal.

As China steps up decarbonization efforts, the country also needs to support its vast industries that are key for its economy and aluminum is one of them.

The construction of alumina projects outside of China will lower risks caused by excessive concentration of imported bauxite and reduce domestic red mud generation, as the country transitions to a lower carbon economy, sources said.

Indonesia in focus

Efforts to protect resources have led to export bans, with Indonesia banning bauxite outflows from the second week of June, industry sources said.

The country already has similar policies in place for critical energy minerals such as nickel.

Indonesia, expected to post the fastest growth in alumina industry globally in the coming years, has emerged as the top spot for China to build alumina projects.

The country is the world's sixth-largest bauxite producer and has the fifth-largest reserves, according to a US Geological Survey. Indonesia is also home to rich resources of coal, a key ingredient to run aluminum smelting operations.

Apart from rich reserves, Indonesia has a shorter haul distance to China and better infrastructure, compared to places like Guinea -- the largest bauxite supplier to China in recent years.

China's appeal

China has attached greater importance to the "quality" of domestic alumina industry instead of "quantity," encouraging domestic refineries to go abroad, state-backed China Nonferrous Metals Industry Association has said.

China has also set higher requirements for investments in domestic alumina projects, especially from 2022, making the entry difficult for new entrants and cumbersome for existing players.

The overheating of investments in domestic alumina projects pushed the government to take those steps, according to the CNIA.

China's established alumina industry totaled 99.55 million mt/year at the end of 2022, up 10.2% from a year earlier, while the capacity utilization rate has reached 82%, data from state-owned research firm Antaike showed.

Meanwhile, China's established primary aluminum capacity is teetering close to the national ceiling, with the current capacity at 44.3 million mt/year end-2022, while capacity utilization rate was 92%, CNIA and Antaike data showed.

There is limited room for further increase in China's alumina production as the country has set the domestic primary aluminum capacity at 45 million mt/year, industry sources said.

Higher reliance on bauxite imports

China's dependency on imported bauxite will likely grow further, as new projects coming on stream will use imported ore, CNIA data showed.

Imports from China's top two bauxite suppliers -- Guinea and Australia -- accounted for 97.8% of the country's total imports in April, according to Chinese customs data.

Since Indonesia's bauxite restrictions curbed exports to China, Brazil became the third-largest supplier with a volume of 152,440 mt, according to customs data.

"We can't get any quotas for bauxite exports [from Indonesia to China] now," a source with an international shipping company said.

Indonesia banned exports of mineral ores, including bauxite, from 2014 for several years.

An analysis of China's customs data showed that its bauxite imports from Indonesia only resumed in July 2017.

Increasing red mud accumulation

In China, utilization rate of red mud has remained low so far, according to the CNIA.

Red mud is an industrial waste generated during the processing of bauxite into alumina using the Bayer process. Typically, about 1-2 mt of red mud is generated when producing 1 mt of alumina.

Red mud can present a significant environmental hazard if it is not stored and disposed properly.

China's utilization of red mud has been slower compared to the alumina production growth over the past decade.

China generated 105 million mt of red mud in 2022 and utilized merely 8 million mt, leading to a utilization rate of 7.6%, a CNIA official said previously.

Challenges remain abroad

Although countries like Indonesia and Guinea have invited overseas companies to build alumina plants locally, construction remained slow compared to the pace of bauxite mining, data from various companies have showed.

Also, market participants remained wary of growth prospects of Indonesia's aluminum industry following the success of nickel, sources said.

The decrease in Indonesia imports could be matched by an increase in imports from Guinea and elsewhere, sources added.

Another worrying factor remains the costs. Construction of alumina and aluminum plants require higher investments compared to the nickel sector.