Bauxite Research Reports for Investors

What is Bauxite?

Bauxite is the principle aluminium ore, formed by extreme lateritic weathering and the in-situ upgrading of aluminium bearing minerals in the weathering profile. Bauxite deposits are generally shallow and flat-lying, forming easy to mine sheets of mineralisation. Commercial ores generally contain from 30% to 55% alumina (Al2O3).

Globally, the largest deposits are found in tropical areas, with Australia, Guinea and Brazil having the largest resources.

Mineralogy

Bauxite is generally a mixture of aluminous minerals, iron oxides, clays and silica. In some deposits the minerals take the form of pisolites, spherical concretions of the minerals.

The key aluminous ore minerals include the tri-hydrate gibbsite <al(oh)3>, and the mono-hydrate minerals boehmite and diaspore <al(oh)>. The mineralogy is important in assessing bauxite – gibbsite is preferred given the lower temperatures required to convert the bauxite to alumina in the Bayer process. Mono-hydrate rich bauxites require treatment in the higher cost high temperature plants, and thus will sell at a discount.</al(oh)> </al(oh)3>

Other mineralogical considerations include silica content and characteristics, particularly the amount of reactive silica in the bauxite. Reactive silica is generally silica in clays, and will consume caustic soda in the processing to alumina, thus increasing costs. Reactive silica contents generally should be below 6% for the product to be marketable; however contents up to 8% are accepted, albeit at a discounted price, and the higher reactive silica product will be the first to suffer in a cooling of the bauxite market.

Processing

Processing of bauxite to aluminium follows a two stage process, and is very energy intensive. It is no surprise that some call aluminium “congealed electricity”.

The first is the refining of bauxite to alumina through the Bayer Process. This involves the pressure digestion of the bauxite, using caustic soda (sodium hydroxide, NaOH). The aluminium oxide in the bauxite is converted initially into sodium aluminate, which through various reactions is ultimately converted to alumina.

Waste products include red mud, a caustic mixture of solid impurities.

The smelting of alumina to aluminium metal is carried out using the Hall-Heroult process. This involves dissolving alumina in molten cryolite (Na3AlF6), and then electrolysing the molten salt bath to deposit aluminium metal on the cathodes in the electrolytic cell.

Supply and Demand

Historically there has not been a large seaborne trade in bauxite, with the low value of the material meaning that operations were predominantly vertically integrated, with the higher value products, alumina and aluminium metal being the main traded products. The bauxite trade was dominated by a few large mines, including Gove and Weipa in Australia, Boke in Guinea and Trombetas in Brazil.

This has changed with the rise of China since 2001. It is estimated that the seaborne trade now comprises 35% of global bauxite production of 260mtpa, with this largely into China.

Key bauxite producers include Australia (with the bulk of production upgraded domestically), China and Brazil.

China now consumes 60% of the world’s aluminium, and produces some 50% of the metal, or around 25Mt of estimated global production of 50Mt in 2013 (source World-Alumium.org). To produce 25Mt amount of metal, approximately 50Mt of alumina is required – according to World Aluminium China produces (including estimated unreported production) ~48Mt of alumina (with the balance being imported), which would require around 100-120Mt of bauxite. This has led to the need to import over 50% of bauxite requirements, with China producing ~47Mt, or less than 50% of requirements in 2013.

The rest has had to been imported, including from Australia, Indonesia and, at high cost, Guinea. The Indonesian bans on the export of raw materials in 2014 severely curtailed supply to China, however China did prepare by stockpiling large amounts of bauxite prior to the ban taking effect, and smaller quantities (~10mtpa) are being exported from Indonesia under a quota system.

Indonesian production in 2013 prior to the imposition of the quotas was 29,000t of which the majority was exported to China. This and the projection for increasing Chinese demand for bauxite has left an opportunity for other producers to ship into China. This however will be largely for material suitable for low temperature smelters – China does have domestic supply for its high temperature facilities. Some forecasts see seaborne import demand rising from the current 50mtpa to 125mtpa over the next 10 years.

Pricing

Bauxite pricing is relatively opaque, and set by contracts between producer and customer. There is a benchmark, the CFR China CIBX Index, based on 5% reactive silica, 50% total available alumina and 10% moisture. Pricing will be affected by THA and RxSi contents, and shipping basis, including FOB or CFR. Whether or not a company has an ongoing offtake agreement, or is selling on a load by load basis will also affect received prices – in the latter case these will be lower.

Current index prices are in the order of US$60/tonne CFR China, with this forecast to increase modestly in real terms. However, given the fall in the Australian dollar and low current shipping costs, Australian denominated FOB prices have increased significantly in recent times.