Bauxite and alumina: trends and prospects Gerald Clark During the past 25 years the bauxite and alumina industry has gro wn threefold creat- ing major change in the industry structure and reducing the dominance of the majors. Australia has emerged as the leading producer with a major third party alumina market developed principally by Alcoa of Australia. Future growth while, less dramatic, is likely to be substantial requiring US$50 billion to fund new projects which will be concentrated in developing countries with large bauxite reserves and developed infrastructure. During the past 25 years the bauxite and alumina in- dustries have undergone major structural changes. New sources of bauxite have been developed, new alumina plants have been constructed and the number and nature of the players in both industries have changed dramatically. If the past is any indica- tion, changes of equal importance are likely to occur in the next 25 years. This paper will therefore explore some of the major trends of the past 25 years with a view to identifying the kinds of changes that seem likely to occur in the next 25 years. Twenty-five years ago, the bauxite and alumina in- dustry was much smaller than it is today. At that time only 30 million tons of bauxite were being mined each year. Today that figure is over 100 million tons. In 1965, the world’s largest producer of bauxite was Jamaica, which alone produced nearly a third of the world’s total (Table 1). Australia, which would be- come the world’s largest producer of bauxite by 1990, produced a mere 1 million tons. In 1965, much of the bauxite (50%) was shipped overseas for processing into alumina. In North America, alumina plants located at Point Comfort, Gramercy , Corpus Christi and Vaudreuil produced Gerald Clark is Executive Director for the Raw Materials Group. Alcan Aluminium Ltd, 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 332. This paper was first presented at the 6th International Aluminium Conference in Singapore in November 1990. While material used in this paper was drawn from Alcan’s records the views expressed are Mr Clark’s personal ones and do not represent a position approved by Alcan. 6.2 million tons of alumina or 54% of the world’s total (Table 2). A perusal of Tables 1 and 2 shows that al- though the Caribbean region produced 31% of the world’s bauxite in 1965, it produced only 7% of the world’s alumina. The pattern is similar for Africa and South America - only a small portion of the bauxite mined in those regions was processed into alumina there. The reason for the concentration of alumina plants in the industrialized countries was that up to and including the early 1960s, it was generally felt that it was too risky to entrust major alumina assets to developing countries, many of which were newly in- dependent and therefore of unknown political risk. During the 1960s, the industry was dominated by the seven sisters, Alcan, Alcoa, Kaiser, Reynolds, Pechiney, Alusuisse and VAW. They were all vertic- ally integrated companies and between them con- trolled 85% of the world’s bauxite output (Table 3). The same group of companies produced 89% of the world’s alumina (Table 4). As most of the alumina producers were located in North America, large quantities of aluminium were exported from there to the Far East, Australia, Latin America and other non-aluminium producing regions. The industry however was not static. Even in the 1960s the seeds of change were beginning to germin- ate. Large reserves of bauxite had been discovered in Australia and a fledging alumina industry was getting under way there as well. Alcan had built alumina re- fineries in Jamaica and Guyana and Alcoa in Surinam to begin to process bauxite on site. Bauxite had also been discovered in Guinea but after Alcan’s national- 276 0165-0203/91/040276-06 @ 1991 Butterworth-Heinemann Ltd
Transcript
Bauxite and alumina: trends and prospects
Gerald Clark
During the past 25 years the bauxite and alumina industry has gro wn threefold creat- ing major change in the industry structure and reducing the dominance of the majors. Australia has emerged as the leading producer with a major third party alumina market developed principally by Alcoa of Australia. Future growth while, less dramatic, is likely to be substantial requiring US$50 billion to fund new projects which will be concentrated in developing countries with large bauxite reserves and developed infrastructure.
During the past 25 years the bauxite and alumina in- dustries have undergone major structural changes. New sources of bauxite have been developed, new alumina plants have been constructed and the number and nature of the players in both industries have changed dramatically. If the past is any indica- tion, changes of equal importance are likely to occur in the next 25 years. This paper will therefore explore some of the major trends of the past 25 years with a view to identifying the kinds of changes that seem likely to occur in the next 25 years.
Twenty-five years ago, the bauxite and alumina in- dustry was much smaller than it is today. At that time only 30 million tons of bauxite were being mined each year. Today that figure is over 100 million tons. In 1965, the world’s largest producer of bauxite was Jamaica, which alone produced nearly a third of the world’s total (Table 1). Australia, which would be- come the world’s largest producer of bauxite by 1990, produced a mere 1 million tons.
In 1965, much of the bauxite (50%) was shipped overseas for processing into alumina. In North America, alumina plants located at Point Comfort, Gramercy , Corpus Christi and Vaudreuil produced
Gerald Clark is Executive Director for the Raw Materials Group. Alcan Aluminium Ltd, 1188 Sherbrooke Street West, Montreal, Quebec, Canada H3A 332. This paper was first presented at the 6th International Aluminium Conference in Singapore in November 1990. While material used in this paper was drawn from Alcan’s records the views expressed are Mr Clark’s personal ones and do not represent a position approved by Alcan.
6.2 million tons of alumina or 54% of the world’s total (Table 2). A perusal of Tables 1 and 2 shows that al- though the Caribbean region produced 31% of the world’s bauxite in 1965, it produced only 7% of the world’s alumina. The pattern is similar for Africa and South America - only a small portion of the bauxite mined in those regions was processed into alumina there. The reason for the concentration of alumina plants in the industrialized countries was that up to and including the early 1960s, it was generally felt that it was too risky to entrust major alumina assets to developing countries, many of which were newly in- dependent and therefore of unknown political risk.
During the 1960s, the industry was dominated by the seven sisters, Alcan, Alcoa, Kaiser, Reynolds, Pechiney, Alusuisse and VAW. They were all vertic- ally integrated companies and between them con- trolled 85% of the world’s bauxite output (Table 3 ) . The same group of companies produced 89% of the world’s alumina (Table 4). As most of the alumina producers were located in North America, large quantities of aluminium were exported from there to the Far East, Australia, Latin America and other non-aluminium producing regions.
The industry however was not static. Even in the 1960s the seeds of change were beginning to germin- ate. Large reserves of bauxite had been discovered in Australia and a fledging alumina industry was getting under way there as well. Alcan had built alumina re- fineries in Jamaica and Guyana and Alcoa in Surinam to begin to process bauxite on site. Bauxite had also been discovered in Guinea but after Alcan’s national-
ization there in 1961 no one firm wanted to venture alone into, what was at the time, a politically unknown and unfriendly environment, and so the major com- panies were talking about sharing the perceived risk by means of a consortium supported by World Bank financing and insurance. As we shall see below, the consortium was to become the investment vehicle of choice in many of the developing countries.
During the 1960s the aluminium market began a period of high growth which would continue well into the 1980s. Much of the growth came about because the aluminium can emerged as a major competitor for steel and glass containers. It was also a period of a tightly controlled market in which there was little room for independents or governments. The alumina industry was in fact a comfortable club largely limited to the seven sisters. Most of the trades in alumina were as swaps between themselves, and independent aluminium producers needing alumina, normally bought it on long-term contracts from one of the
majors - often from Alcan but increasingly from Alcoa as well.
The growth of the aluminium market that began in the 1960s produced structural changes in the industry. Locally, the increased demand for aluminium created new national markets which could be efficiently served by local smelters. Smelters not owned or con- trolled by the seven sisters were constructed in South America and in the newly industrializing countries of the Pacific Rim, as well as in the gas or oil rich coun- tries of the Middle East. Globally, the seven sisters faced problems that they had not confronted before. To meet the increased demand for aluminium re- quired the investment of thousands of millions of dol- lars in new greenfield bauxite and alumina facilities, sums which even the largest of the seven sisters found difficult to finance alone. The financing was com- plicated by the fact that many of those investments needed to be made in the less developed countries, where few of the seven sisters were willing to accept
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Bauxite and alumina: trends and prospects: G. Clark
Table 4. Alumina production by company, 1965 v 1990.
Company Alcan Alcoa
‘iiser Reynolds Pechiney Alusuisse VAW Other Corn a Ico Bi I l i t o n Total
K. ’ .
1965 (tonsX lo6) 2.3 2.8 1.3 1 . 1 1 .o 1 .o 0.7
11.3 -
-
11,s
Percent of total 20 24 1 1
9 9 6
1 1
i n
-
-
100
1990 (tonsX lo6) 4.0 9.3 2.4 2.6 2.1 1.4
9 .3 1 . 1 1.8
34.2
-
Percent of total 12 27
7 8 4 4
27 3 5
100
-
by themselves the perceived risk. Nevertheless, exhaustion of European and US bauxite reserves forced the major companies to look farther afield at a time when the costs of mining, of processing and of shipping bauxite were all rising. To counter the effect of rising costs the major companies resorted to economies of scale and because such facilities re- quired very large investments, often in the LDCs, the companies resorted to consortia to raise the needed capital and to share both the political and economic risk. Guinea and Brazil both became major pro- ducers of bauxite with the help of international consortia working with government or government designated companies of the host country.
By the 1990s, the bauxite/alumina industry was three times as large as in 1965, producing some 100.2 million tons per annum compared to some 30.6 mil- lion tons in 1965 (Table l) . In the process of growing, the industry underwent major structural changes as the sources of bauxite shifted dramatically. Bauxite production in the Caribbean grew marginally from 9.9 to 10.8 million tons, but the region’s share of the world’s total production dropped from 32% to 11 ‘/o in 1990. During the same period, South America almost tripled its bauxite tonnage, but its production in terms o f the world’s total decreased by 6% to 19%.
More important, however, is the fact that the mix of producers changed radically. Brazil is now the dominant bauxite producer in South America, while Surinam continues to maintain its position and Guyana has seen its production decline. In the world at large, the biggest change is in Australia, which has increased its bauxite production by over 3000% from what it was in 1965 to 34.7 million tons. That is more than total world production in 1965! Today, Australia is the world’s largest producer (Table 1) with the majority of its production refined at home. Africa, specifically Guinea, has also become a very important producer of bauxite. Once the major companies over- came their reluctance to invest in newly independent African countries, they discovered that in Guinea they could do major business in a mostly satisfactory
way. Today, Australia, Guinea and Brazil mine over 60% of the world’s bauxite and the probability is that the percentage will increase for at least the next 10 years. North America and Europe for economic reasons (as well as exhaustion of reserves) have, to all intents and purposes, ceased bauxite mining.
A change similar to that in the bauxite mining industry has taken place in the alumina industry (Table 2). Because it was judged politically ‘safe’ and also because its bauxite is of relatively low quality and thus too expensive to ship abroad, Australia became home to a new and large generation of alumina plants. Australia alone now produces as much alumina, 11.2 million tons, as the world produced in 1965, and is today’s dominant producer. And al- though North American production has increased marginally over what it was in 1965, its share of world alumina production has dropped from 54% to only 20%. South America has increased alumina output by a factor of five since 1965 and now produces 4.7 million tons of alumina or 14% of the world’s total. South America is moving rapidly to eclipse North America as the world’s second largest producer of alumina and will almost certainly do so by the end of this century because it is unlikely that either North America or Europe will increase alumina capacity further. In fact, it is more likely that there will be a drop in tonnage as older and higher cost alumina plants in these regions are phased out.
The Caribbean and the Asian regions have both in- creased their alumina output by a factor of three since 1965, but because world alumina output has also in- creased, the output of each remains at about 7% of the world’s total, the same as in 1965. Much of the in- crease in alumina production has occurred as a result of foreign investment in the LDCs, where alumina plants are often built close to their sources of bauxite to keep transport costs to a minimum.
Whilst all the new alumina plants that have been built in Australia and the Caribbean are located at o r very close to a bauxite mine, it is surprising to find that some 5 million tons of new capacity was built in
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Figure 1. Effect of alumina plant location on cash cost of alumina.
this period in Europe and South America at plants not located at or near their own bauxite supply. One result of this is that over 34 million tons of the world’s highest grade bauxite is still being hauled across oceans. Quite obviously, the plants to which that bauxite is being delivered are not the cheapest pro- ducers of alumina in the world since their freight costs are a major handicap. In a prolonged period of low aluminium prices, such plants may be vulnerable to shutdowns, particularly where they are in high labour and energy cost areas.
Figure 1 depicts the world’s current alumina capa- city against cash cost of production. On the cost curve are plotted the location of those alumina plants loc- ated at or close to their source of bauxite and those plants which import their bauxite from distant sources. Plants built close to a bauxite source tend to produce the lowest cost alumina, although they are located along the entire price spectrum. Plants further away from bauxite tend to the higher end of the cost scale. That fact alone makes it a virtual cer- tainty that in future the world will see new alumina plants built at or close to a bauxite source, unless there are extraordinary circumstances.
Not only have new sources of bauxite been de- veloped and the preferred location of alumina plants changed during the past 25 years, but the industry has undergone another structural change. In 1965, the bauxite and alumina industry was dominated by the seven sisters. Those seven controlled the great major- ity of the world’s bauxite production and 89% of the world’s alumina production. Today they control only 53% of the world’s bauxite production (Table 3) and consortia, often with only one or two of the seven
Table 5. Sales of alumina to third parties by sources, 1990.
Entity Alcoa Billiton Kaiser Pechiney Reynolds Alcan Traders Other Total
Tonsx 106 4.0 1.3 1 .o 0.2 0.4 0.2 1.2 1.2 9.5
Percent of total 42 14 11 2 4 2
13 13
100
sisters, have become the preferred vehicle for development of new bauxite mines.
In alumina, Alcoa now controls 27% of the world’s alumina production (Table 4) and sells approximately 42% of its output to third parties (Table 5 ) . As for Alcan, it produces 12% of the world’s alumina but because it consumes all its alumina in-house, has vir- tually stopped third party sales. In addition to Alcoa, Billiton, Pechiney Trading, Kaiser and Marc Rich are the major sellers of alumina and between them sell some 4 million tons per year. The third party sales market has grown substantially since 1965, reaching some 9.5 million tons in 1990 or nearly a third of the alumina produced. The seven sisters now control only 64% of the world’s alumina production compared to 89% in 1965. In raw terms the numbers look better: in 1965 the seven produced 26.1 million tons of alumina and in 1990,64 million tons. The picture for the seven sisters is therefore one of growth but in a market which is expanding at a faster rate than they are growing.
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Having examined the major trends in the bauxite and alumina markets during the past 25 years, we are now ready to take a look at what changes might occur in both industries during the next 25 years.
To begin, aluminium will still be one of the world’s most important metals in 25 years time despite com- petition from plastics and other materials. The signi- ficant inroads made in the automobile industry will continue as efforts to increase mileage by weight re- duction continue and further erode the position of steel in the automobile. Aluminium will also continue to be the material of choice for most of the can and packaging industry. In addition, new and as yet un- tested markets for aluminium can expect to unfold. That said, it does not seem likely that the high growth rates seen in the 1970s will return. It seems more likely that aluminium demand will grow at some 2% per annum and that recycling (of ever increasing im- portance in our ecologically conscious world) will grow at some 4% per annum. By deduction, this means that demand for alumina, and bauxite as well, will only grow at 1.8% per annum - give or take 20%. Thus by 2015, the world will need 150 million tons of bauxite per annum in order to produce the 50 million tons of alumina that will be needed. That is not as for- midable a task at it might seem. World output of bauxite is now 70 million tons per year greater than it was in 1965! Nevertheless, in 1990 dollars, the capital cost of the additional capacity is likely to exceed US$30 thousand million and that sum is based on the assumption that all today’s alumina plants will con- tinue to operate and all today’s bauxite mines will continue to produce bauxite. That situation is un- likely, and thus the industry will more likely have to spend some US$50 thousand million just to put the necessary capacity in place and to eliminate high cost plants and replace mined out operations.
Assuming that those costs will be met, from where will the 150 million tons of bauxite come in 2015? Australia, Brazil and Guinea will undoubtedly in- crease their production levels (Table 6). Jamaica may increase its production as well, but only marginally because its reserves will by then be dwindling. Ven- ezuela may become self-sufficient and be able to feed its growing network of alumina plants entirely from domestically produced bauxite, but Surinam and Guyana may well have ceased to be producers due to exhaustion of economic reserves. India will likely be- come an important supplier and major mining opera- tions are likely to have started in the Cameroons and possibly in Vietnam as well. In addition, one can expect some small mine development in those LDCs anxious to remain in the bauxite export business pro- vided their reserves are sufficient and the heavy initial infrastructure is in place. Table 6 shows which coun-
Table 6. Bauxite production, 1965, 1990 and forecast for 2015 by country (tonsx10~).
Australia Brazil Guinea Jamaica Cameroon Vietnam Indonesia Rest of world Total
1965 1990 1 35
~ 10 2 15 9 10 - - - ~
1 2 17 28 3 0 100
2015 55 15 25 15 8 6 8
24 156
Table 7. Alumina production forecast for 2015 and production statistics for 1965 and 1990 (tonsX lo6).
Australia Brazil North America Europe Jamaica Guinea India Rest of world Total
2015 19 5 5 4 5 3 4 8
53
1990 1965 11
1 I 5 5 2 3 1 I I 1 5 2
34 I 1
- -
~
tries are forecast to be major producers of bauxite in 2015, as well as their production, if any, in 1965 and 1990. In 2015, Australia will remain the largest baux- ite producer in the world, producing more than a third of the world total. Australia aside, the pattern already visible in the 1980s of increasing investment in bauxite mines in the LDCs will accelerate over the next 25 years. The high cost of developing new green- field mines in those countries will mean that consortia made up of both old and new players in the industry with their ability to pool resources will play an ever increasing role.
During the next 25 years the alumina industry is likely to follow the same path as the bauxite industry. It can safely be assumed that present possible brownfield expansion opportunities will have been completed by 2000. Excluding any greenfield plants that will have been built by that date, there will still be a need for about 13 million tons of new alumina capacity by 2015. Because the cost of producing alumina, all other factors being equal, is lowest for plants located close to a bauxite source, it is likely that the new plants will be built in those countries which are large producers of bauxite.
Much of the new alumina capacity will therefore be built in Australia, Brazil, Guinea, India and Jamaica (Table 7). Major alumina facilities are also likely to be built in at least one of the Cameroons, Indonesia and Vietnam.
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will lose some of their original members and that one or two will become considerably larger. One thing is certain the most successful companies in bauxite and alumina will be those that have learned to work hand- in-hand with the developing countries in developing the latter’s natural resources.
As we have seen, during the past 25 years the seven sisters have experienced a decline in their market share in both bauxite mining and alumina production, whilst others, such as Comalco and Billiton loom as ever larger players in the industry. N o one can, of course, predict accurately what will happen during the next 25 years. But it is likely that the seven sisters
