MYSTEEL: Spot bauxite prices in China seen slipping further

As of February 11, the price of Guinean bauxite (AL: 45%, SI: 3%) at North China's Tianjin port under Mysteel's assessment was at Yuan 929/wmt ($127/wmt) including the 13% VAT, lower by Yuan 27/wmt from that on February 5, the country's first working day after the CNY break. Prices are softening mainly because of subdued demand as well as stable bauxite supplies from Guinea, a key import source of the raw material, according to industry watchers.

The bearish sentiment driven by the decline in alumina prices could push prices for imported bauxite at China's major ports to a new low in the short run, thanks to alumina producers' margin pressure, the report notes. Also as of February 11, the price of alumina (Al2O3≥98.6%) in East China's Shandong province, the country's largest alumina refining base, was assessed by Mysteel at Yuan 3,430/t, down by Yuan 60/t on day and by a large Yuan 320/t on week, the data show.

The fall in prices has prompted the alumina refineries to squeeze their raw material procurement costs lower to secure their profit margins, according to sources. This is prompting traders holding substantial bauxite stocks to hurry to liquidate their inventories before prices slide further. However, some spot bauxite deals concluded during the CNY holiday have already been renegotiated, the sources note, adding that a few buyers are even at risk of breaching contracts.

Negotiations for imported bauxite are at a stalemate, with no deal concluded since the CNY holiday ended, Mysteel Global learns. Moreover, bauxite prices are unlikely to rise any time soon as shipments from Guinea to China remain abundant, Mysteel data show.

During the week to February 7, the volume of imported Guinean bauxite arriving at Chinese ports totaled 2,036,900 tonnes, higher by 20.2% on week and by 61.6% on year, Mysteel's latest survey shows. Contributing to the rising shipments has been the expansion of existing mines, shipment growth of new mines, and stability in Guinea. The steady arrival of shipments, some 80% of which are sold under long term contracts, means Chinese purchasers' demand for spot bauxite remains weak.

With imported bauxite prices in a downward trend, it is likely that spot bauxite prices will stay lower than long-term contract prices going forward, forcing traders holding inventory to sell at a loss. The imported bauxite price will decline further in the short term, Mysteel's report forecasts. Moreover, alumina producers will likely reduce production if the alumina price slump continues, it suggests. 

Written by Iris Pang, pangjunyu@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com