China’s phenomenal success in building a strong steel industry,
now accounting for close to half the global capacity has no
doubt overshadowed an equally impressive progress the country
is making in aluminium and in its upstream in alumina and
bauxite, writes Kunal Bose in Bhubaneswar and New Delhi.
Slowdown in economic activity in the first three quarters of last
year ensured a marginal fall in 2009 Chinese aluminium
production to 13.642mt (million tonnes) from 13.694mt in 2008.
But production since the final quarter of 2009 is steadily gaining
in pace and Chalco, the country’s leading aluminium maker, has
forecast white metal production of 17mt this year when
domestic demand will be 16.5mt. China Metals has, however,
projected production and demand at a somewhat moderate
16.5mt and 15.3mt, respectively.
As the country has now nearly one-third share of the world
aluminium production, the biggest challenge for it is to have
security of bauxite and alumina supply and as much of that as
possible domestically. According to CRU International, the UK
based consultancy, China produced 23.417mt of metallurgical
grade alumina in 2009 when it also imported 5.417mt of the
intermediate chemical. Incidentally, Australia alone supplied
4.839mt of alumina to China last year. The world’s biggest
producer of the metal and alumina is required to import large
quantities of bauxite to feed its refineries, located particularly in
Shandong. Going by the first quarter import of 6.303mt, China
is likely to use close to 25mt of bauxite of foreign origin this
year. Indonesia is the principal supplier of bauxite to China
which also buys the mineral in big volumes from Australia. India
too exports both bauxite and alumina to China.
How big are the Chinese bauxite reserves? Officially, the
reserves are 2.9bn tonnes. But Clark & Maron, Australiaheadquartered
business consultancy, which recently has done a
survey of China puts the country’s bauxite reserves at 12.4bn
tonnes. Many have started believing that the reserves, following
discoveries of deposits at Henan, Shanxi and Guizhou could be
in excess of 20bn tonnes. The question that follows is why is
then China going all out to acquire bauxite deposits either on its
own or in joint ventures with foreign partners? China’s bauxite
has a good percentage of alumina. But since it also has large
traces of silica, extraction of alumina in refineries poses technical
challenges. Trust the Chinese to make breakthroughs in refining
technologies to allow use of silica rich bauxite. This will,
however, take time. In the meantime, China is selectively mining
bauxite where the presence of silica is comparatively less making
it feed worthy in functioning refineries.
The growing Chinese emphasis on exploration taking help of
advanced technologies like remote sensing and aerial
reconnaissance is understandable. The country’s extraction
accounts for over 10% of globally mined bauxite and therefore, it
must come to a position to open new mines and expand the
operational ones at a rapid pace. Even then, considering the size
of its aluminium industry, it is essential that China is able to get
more and more part or full ownership of bauxite deposits
wherever in the world the mineral is found. Nearer home,
China has mainly targeted Vietnam with estimated reserves of
8bn tonnes, principally in Central Highlands, Laos, Cambodia and
Indonesia. Globally mining has become a sensitive subject as it
involves displacement of indigenous people and has implications
for environment. In fact, some of China’s moves in Vietnam’s
Central Highlands are getting stymied because of strident
protests from the local civil society. At the same time,
Vietnamese prime minister Nguyen Tan Dung has asked Vietnam
National Coal & Mineral Industries Group (Vinacomin) to offer
Chalco a 20% stake in the Tan Rai
bauxite mining project and a 40%
ownership to Alcoa of the US in the
Nhan Co refinery venture. Chinese
companies besides, aluminium groups
elsewhere are seeing major openings
in Vietnam which needs investment of
$15.6bn in major bauxite and alumina
projects by 2025. Prospective foreign
investors have been given the message
that while Vietnam needs outside
investment to gainfully exploit its vast
bauxite reserves, it will only allow the
use of environment friendly mining
and refining technologies.
What is giving China a definite
edge over others in acquiring
ownership or lease rights of natural resources assets in
developing countries of Africa and Asia is its readiness to invest
in infrastructure building. This strategy has given China a big
lead in Africa where it has braved to make investments even in
highly politically disturbed nations. In Cambodia too, China is
engaged in road building on Bolaven Plateau with coveted
bauxite reserves. With Australia being the single largest source
of bauxite imports, it is only to be expected that China with
good politico-economic ties with Canberra will be cherrypicking
there too. Australia not only has proven bauxite
reserves of about 8bn tonnes, but true to the epithet that it is
the miner to the world, the country accounts for one-third of
the world’s annual bauxite production.
Recently, China’s Yaukuang Corporation has taken an 8.42 per
cent ownership of Bauxite Resources Limited of Australia for
$(A)9.85m. At the same time, the Australian Foreign Investment
Review Board has approved a 50:50 bauxite to alumina joint
venture between the two with the aim to generate up to 300mt
of refinery grade bauxite over the years. At the same time,
Queensland government has offered Chalco an opening at Cape
York Peninsula to develop a bauxite mine with annual capacity of
6.4mt with life of 30 years at least and build a refinery in the
downstream. Incidentally, Rio Tinto’s major Weipa bauxite
operation of 16mt a year is next to where Chalco is to work.
Unarguably, the most important development in bauxite
mining to aluminium smelting industry to happen since Rio Tinto
bought Alcan, which in retrospect looks a too expensive a deal,
is Norsk Hydro of Norway acquiring Brazilian Vale’s 60% of
bauxite assets and full ownership of Vale’s alumina and aluminium
assets. As part of the cash cum share deal, Hydro will gain 60%
ownership in Paragominas bauxite mine, increase its stake to
91% in Alunorte refinery, get a 51% share in the 460,000-tonne
Belem smelter and also an 81% stake in CAP alumina refinery
project. Moreover, Hydro will retain the right to buy the
remaining equity of Paragominas for cash payment of $200m for
each of the two instalments in 2013 and 2015. But why did Vale
go for this deal? One, the cash of $1.1bn that Vale receives
could be used for its iron ore business in which it is the world’s
dominant player. While unburdening itself of running bauxite to
aluminium business, Vale will still have a finger in that pie through
a 22% ownership of Hydro.
Like other bauxite rich countries, India with reserves in
excess of 3bn tonnes is too seeing much action. Hindalco, an
aluminium to copper group, which invited much global attention
when it acquired Novelis in 2007 has announced that it would
commission through a wholly owned subsidiary a 1.5mt refinery
fully backed by captive bauxite
supply in Orissa’s Rayagada district
by July 2011. Yet another group
subsidiary will be ready with a
1.5mt refinery and a 4.2mt a year
bauxite mine at Kansariguda in
Orissa by the middle of 2013. The
Kansariguda refinery will be ramped
up to annually make 2mt of alumina
within three years of start up.
But the ceaseless struggle by
non-ferrous metals major Vedanta
to open bauxite mines in Orissa’s
Niyamgiri hills where it has been
given access to 80mt deposits by
the state government is proving
unnerving for other potential
investors in India’s mining sector. This is after the company was
allowed by the Supreme Court in August 2008 to start mining
after making a deposit of $28m for reforestation, wildlife
protection and area development work. As the mines cannot be
opened because of continuing protests by indigenous Gond
tribesmen who consider Niyamgiri Hills, home to their God, too
sacred to be allowed desecration by mining. Vedanta is in a bind,
for it has already commissioned a 1.4mt refinery and a 250,000-
tonne smelter in the downstream. Until such time, the company
is able to take out bauxite from the leasehold are in the hills, it
will be required to ferry the mineral from distant places at an
expense as feed material for the refinery and in the process
compromising the viability of the integrated project.
Industry officials say, besides a notoriously slow and complex
bureaucracy which will test investors’ patience before all the
environment and forest related clearances are made available,
the challenge is to make the local people understand the
benefits that will come to them from mining operations.
Interestingly when Dubai Aluminium (Dubal) first looked at India
for a bauxite mining and refinery project through a JV with a
local group, it braced itself for long delays. Some Chinese groups
have also shown keenness to do bauxite mining and refining the
mineral into alumina in Orissa. But they are waiting for more
congenial condition before coming out with formal investment
Vale’s sale of aluminium assets takes world by surprise
Vale has surprised the world by selling all its assets in the aluminium complex to
Norsk Hydro cheaply, at a time when demand is strong, writes Patrick Knight.
Vale has astonished most analysts by selling all its assets in the bauxite, alumina and
aluminium complex to Norsk Hydro for almost $5 billion.
Aluminium and the ore and alumina needed to make it, have been a key part
of Vale’s empire for more than three decades.
The building of the Albras smelter and the Alunorte alumina plant, as well as the opening
of the MineracaoRio do Norte, MRN plant on the Trombetas river, and
subsequently the Paragominas bauxite deposits as well, absorbed
a large proportion of company resources during the 1970s and
Following the recent boom in sales of iron ore to China, the
company seems to have decided to concentrate its resources on
ferrous metal, both at its mines in Brazil and following the
purchase of a share in mines in Guinea in Africa as well.
Just prior to the news from Vale, the Votorantim group, owner
of the integrated Brazilian Aluminium Company, CBA, the largest
smelter in Brazil, announced that it is to build a new plant in
Trinidad & Tobago, rather than increase output at its 475,000-
tonne-capacity plant in Sao Paulo state.
These are just some of the important changes to affect
Brazils aluminium industry in the past few months which, after a
sharp downturn last year, is now facing extremely strong
domestic demand for the metal, as well as for the bauxite and
alumina used to make it.
The Brazilian economy is expected to grow by more than 6%
this year, while demand for aluminium will grow by at least twice
Vale seems to have concluded that despite the fact that
several large new hydro-electric power stations are being built,
or are planned in the Amazon region, it will not be able to buy
electricity for $25–30 per MWh, the maximum needed if
aluminium smelters are to be competitive.
At the moment, smelters in Brazil pay up to $55 per MWh
for most of the electricity they buy in Brazil, resulting in power
representing 50% of the cost of producing primary aluminium.
Even companies such as CBA, which generates 85% of the
electricity it uses at its own power stations, have to pay steep
transmission charges as well as high taxes, as does Alcoa, which
also generates most of the electricity needed at its mills in
But Alcoa, the world’s largest producer of aluminium and
which will extract 2.5mt (million tonnes) of bauxite from its
brand-new $1.5 billion Juruti mine in Amazonia this year, as well
as refine more alumina at its Alumar mill, takes a different view.
Alcoa has a share in the 11.200MW-capacity Belo Monte
hydro plant to be built on the Xingu river and the company is
considering building a 400,000-tonne-capacity smelter nearby.
Alcoa executives say that projects such as Belo Monte do not
often occur, and the company wants to seize the opportunity
the new plant offers.
The smelter Alcoa is planning will be just a few kilometres
from Belo Monte. Most of Belo Monte’s electricity is taken
2,000km to markets, along high-cost transmission lines. About
6% of the electricity is lost on the way.
Alcoa hopes to be able to negotiate a favourable price for the
power it would buy almost ‘over the fence’.
With demand now growing fast, Brazil is expected to have to
import aluminium from 2011 onwards, some likely to have been
made from bauxite mined in the country or the alumina refined
This dramatic new situation will doubtless cause politicians in
the north and elsewhere to press for new smelters to be built in
The assets bought by Norsk Hydro include a controlling
share in the 450,000-tonne-capacity Albras aluminium mill and a
91% share in the Alunorte alumina mill, now being expanded.
Norsk will have a right to 60% of the bauxite mined from the
700mt bauxite deposits at Paragominas, from where almost
10mt of the ore a year is now being taken 400km to a port in a
slurry pipeline for processing into alumina or exported.
Norsk Hydro will also take over Vale’s share in the 25 years
old Mineracao Rio do Norte (MRN) Trombetas mine. Output at
MRN was cut to 13mt last year, as demand fell sharply, but
Trombetas will produce 18mt of bauxite again this year, for use
either at the Alunorte refinery or for export.
The main explanation for Vale exiting the aluminium complex
seem to be political.
The person most likely to succeed Luis Inacio Lula da Silva as
president of Brazil at elections scheduled for October, is
Ms Dilma Rousseff, now his prime minister.
Rousseff was previously minister of mines and energy, and she
has already said she plans to ‘tighten control’ of Vale if she wins
power at the end of this year.
Lula criticized Vale last year when the company laid off a few
hundred workers when demand for iron ore slumped last year.
Members of the ruling PT party feel that companies such as Vale,
most of whose shareholders are state sector company pension
funds and banks, should, like the Petrobras state-controlled oil
company, play a social role as well as seek to maximize profits.
The last thing such companies should ever do is to fire staff, in
the view of the ruling Workers Party.
It could well be that Vale president, Roger Agnelli, decided
that the company should exit the aluminium sector now, even at
a substantial loss, than be prevented from doing so from next
year on. In any case, Vale now owns 20% of Norsk shares, so if
the company does well, it will benefit.
Most people think that Norsk Hydro, which gains control of
an annual production of 12.2mt of bauxite and 6.9mt of alumina,
as well as some primary aluminium, has got a very good bargain.
The assets cost Vale at least twice as much to build as Norsk
paid for them.
It is more than 25 years since a brand new aluminium smelter
was built in Brazil, and with 25% more aluminium likely to be
sold on the domestic market this year, some primary aluminium
or scrap will have to be imported in 2011.
Only 158,000 tonnes of primary aluminium was exported in
the first four months of this year, compared with the 244,000
tonnes shipped in the same period of 2009, as domestic demand
for the metal booms.
Although about 600,000 tonnes of primary aluminium was
exported last year, the Alumar mill has a long-term contract to
export 450,000 tonnes of the metal to Japanese shareholders
each year. The 50,000 tonnes of primary metal which will
remain in Brazil will not be enough to meet all the extra demand
from the motor, and packaging industries, as the economy soars.
If Vale seems nervous about its autonomy, Alcoa, which
reduction output at its smelter in Minas Gerais by 20% last year,
as well as slowing work at its Juruti bauxite mine, seems much
more sanguine about long term prospects in Brazil, as does
Novelis, previously Alcan, which is investing heavily in new plants
for making cans and extruded products for the construction
This despite the risks caused to the world aluminium industry
by the huge rise in production in China and the fact that millions
of tonnes of the metal are held in stock by banks or speculators
who may decide to sell it if the financial crisis worsens.
If the situation as regards aluminium in Brazil is somewhat
confused, big investments in expanding output of both bauxite
and alumina, which suffered a setback last year, are now back on
course, as demand for both materials is soaring.
About 5% less aluminium was consumed in Brazil last year
than in 2008, which resulted in almost 650,000 tonnes of the
metal being exported in 2009, almost 100,000 tonnes more than
in the previous year. The Votorantim company, which normally
exports about 25% of the 475,000 tonnes it now produces,
exported 40% of what it made last year, at prices far below
those of most recent years — notably in 2008, when aluminium
complex exports earned Brazil $4.8 billion.
Bauxite exports fell from 6.2mt in 2008, to less than half that
last year, when demand in major markets Europe and the United
States, fell sharply.
Mines such as Trombetas produced 10% less and Alcoa came
within an ace of halting construction work at its new Juruti mill.
But demand is looking up this year and in the first four
months of 2010, more than a million tonnes more bauxite was
exported compared with the 744,000 tonnes shipped January to
April last year, as well as 1mt of alumina, 200,000 tonnes more
than was shipped in the first four months of 2009, when
refineries cut output.
Another cause for concern for companies in the mining
industry, is that a new code for minerals is planned for Brazil. It
seems likely that royalties charged on the export of ores, will be
increased, as the Australian government has recently done.