Indonesia's move to change its mining laws was a "wake-up call" to China, its biggest customer for bauxite, and has led the Asian nation to reassess its supplies, a senior executive at Alcoa told Metal Bulletin.
"What happened last year in Indonesia was really a wake-up call in China: it's not maybe so much that the industry expected a ban would be effected, but I think probably the industry was surprised that Indonesia actually did stop bauxite shipments for a few months," Tim Reyes, Alcoa's president of global primary products, said.
The reduction in Indonesia's bauxite shipments showed that countries are seeking to add value to their raw materials rather than simply export them, Reyes told Metal Bulletin in an interview on the sidelines of its 19th Bauxite & Alumina conference.
He was speaking shortly after an official from the Indonesian government clarified its plans, with details that participants at the conference had been waiting for.
"Ultimately it has led to action, and we've seen the Chinese moving further out into the world, looking for alternative sources of bauxite. We've seen an increase in urgency around that, and we continue to hear that domestically China's bauxite quality is deteriorating even though they are finding new reserves, so overall I think Indonesia is more concerned about the overall availability of bauxite in the long run."
China imported around 80% of its bauxite needs from Indonesia in 2011, though this level slumped when Indonesia changed its mining laws to require companies to have export licences based on new criteria.
As companies became licensed, exports resumed. But China had already started to look for alternative supplies and was also investigating ways to adapt its refinery technology to allow it to use different bauxite types.
Many of its refineries had been built to take Indonesia origin bauxite. Reyes said adaptation of technology is crucial to industry. "Alcoa has been very successful at improving technology over the years so our refineries are some of the most efficient in the world," he said in an interview on the sidelines of Metal Bulletin's 19th Bauxite & Alumina conference in Miami.
"In the long run, we can understand why companies would want to continue to look at alternative technologies, especially because we see costs today rising overall, whether that be the cost of inputs, or the quality of bauxite in different countries.
“For Alcoa itself, we continue to think we are the best refiners of our bauxite today; we get the most value out of our bauxite by refining it through our own refineries, which is why we continue to be more integrated on bauxite and refining," he added.
But integrating bauxite and alumina operations is not always the industry norm. "We've seen more bauxite moving across the ocean but that doesn't mean we're seeing that bauxite get matched up with the lowest cost refining. Putting those pieces [bauxite and alumina] together is one of the things that has made our venture very successful and made us a low-cost producer in the industry," he said.
"As you put bauxite on the water you expose it to more risk, including for instance the freight component which is relatively diminished today relative to historically, but is certainly there for the long run," he told Metal Bulletin.
"It's a natural progression, the lowest cost refinery projects will get done, which in our world doesn't necessarily point to China, but more to places where you have access to high quality, large reserves of bauxite."
Reyes noted that some of the world's alumina production continues to operate at a loss, much of it located in China and particularly its state-owned enterprises, which leaves the potential for cuts in the future.
"We've seen alumina capacity in China move on and off depending on the relative differences between the domestic price and the import price, so I would expect to see that type of activity continue," he said.
"The price is going to drive the balancing of the market either through the highest cost refineries or through some of the refineries in China that have shown a propensity to swing," he added.