Monsters of Rock: Is bauxite the next boom?

Bauxite and alumina prices surged in 2024
Supply cuts from Australia, Brazil and Guinea have put pressure on the market
LME aluminium prices supported by Rusal production cut, canned China export rebate

Monsters of Rock drills deeper into the ASX’s large cap mining stocks with mining scribe Josh Chiat

Bauxite, sludge red, ugly as sin, has emerged as a surprise commodity winner in 2024, rising 54% to overtake gold and silver as the best in class outside the weird and wacky world of antimony.

It’s a turn up for the books for the unfashionable bulk, whose longstanding WA producers have been scrutinised for years over their environmental management.

Alumina, the mid-stream aluminium oxide product that sits between the unprocessed bauxite and LME grade aluminium metal, has been the biggest beneficiary, a squeeze in supplies sending prices up 140% in the past year according to analysis from Commonwealth Bank’s commodities guru Vivek Dhar.

That’s led to moves further up the chain, with three-month LME prices up 17% for aluminium in a weak base metals market.

Only zinc prices have done better thanks to a string of mine closures.

Australia was the first market to see the tightening of the belt in alumina supply with the curtailment announced in January of the old and higher cost Kwinana refinery by US-headquartered Alcoa.

More struggles have followed at home and more recently around the world.

“A faulty pipeline that disrupted gas flows to Rio Tinto’s alumina operations in Gladstone in early March then led the company to declare a force majeure on its alumina exports in late May,” Dhar noted.

“These outcomes help explain why Australia’s alumina production has declined ~8%/yr from January to October.

“It’s worth noting that Australia’s alumina output improved in October given ~95% of gas supplies to Rio Tinto’s Gladstone operations were restored last month.

“Unsurprising, Rio Tinto lifted the force majeure on its alumina exports from its Gladstone operation earlier this month. Rio Tinto expects both its refineries in Queensland to return to normal by the end of the year.

“The fall in Australian alumina production though has still weighed on global alumina output. Given the growth in global primary aluminium output (+2.8% increase in the first 10 months of the year) has eclipsed the pace of global alumina output (+1.8%/yr), alumina markets have naturally tightened through 2024.”

Global supply crunch

The Aussie mine supply issues have been followed by outages at a major alumina refinery in India owned by Vedanta called Lanjigarh because it could not source adequate bauxite supply, Dhar said.

That’s come on top of Guinea’s plan to suspend Guinea Alumina Corporation’s exports in early October, a supplier to both Emirates Global Aluminium in the UAE and Vedanta in India.

“EGA have noted that it doesn’t expect the Guinea export ban to impact its UAE alumina operations. Given GAC has long‑term bauxite offtake contracts with Vedanta, India’s alumina production can also potentially be adversely impacted by the ban,” Dhar said.

“Given these latest alumina supply disruptions are underpinned by insufficient bauxite supply, seaborne bauxite prices have naturally surged over the last month.

“All in all, the sharper rise in seaborne alumina prices relative to aluminium prices means margins have eroded further for aluminium smelters dependent on imported alumina. This has the potential to see smelters curtail output if current dynamics persist.”

That moved front and centre overnight as Russian giant Rusal cut 250,000t of aluminium output due to surging alumina prices, which have seen materials supply costs rise from ~30-35% of its cost base to over 50%.

Rusal produced 3.85Mt of aluminium in 2023, around 5.5% of world supply according to the Shanghai Metals Market.

Aluminium prices have also been supported by the announcement of an end to rebates for Chinese refiners who export material overseas, getting ahead of potential tariffs from the incoming Trump administration and threatening to reduce supplies in the west.

“In the near term, the cancellation of rebates will make Chinese aluminium more expensive on the international market and could lead to a reduction in export volumes. Chinese aluminium exports have surged over the past two decades,” ING’s Ewa Manthey and Warren Patterson said last week.

“This could be a strategic power move, demonstrating China’s crucial role in global markets and its ability to influence prices and demand, in the context of trade tensions following Donald Trump’s win in the US presidential election – which China might use as leverage in trade negotiations.”

ASX stocks in the alumina game

Bauxite and alumina producers on the ASX are few and far between.

But a handful of stocks have benefitted from this year’s surprise turn in the market.

$320 million capped Metro Mining (ASX:MMI) is up 190% YTD, having posted record production in the September quarter from its Bauxite Hills mine in far north Queensland of 2.13Mt.

That underpinned new operating cash flow of over $29 million, on shipment of 780,000wmt.

According to MMI, China has increasingly been reliant on imports in recent years to fill alumina refinery supplies, with imports rising 13% in 2023 to a record 142Mt and climbing 12.7% YTD again to September 30.

China’s bauxite imports have been steadily climbing. Pic: MMI

Having taken over its JV partner Alumina Limited, US$11.4bn Alcoa Corporation’s (ASX:AAI) Australian CDIs have lifted ~36% since the merger, though diversified South32 (ASX:S32) and Rio Tinto (ASX:RIO) have seen muted interest.

The ASX 300 Metals and Mining index fell 0.25% over the past week.

Which ASX 300 Resources stocks have impressed and depressed?

Making gains 🚀

Spartan Resources (ASX:SPR) (gold) +13.8%

Vulcan Energy Resources (ASX:VUL) (lithium) +7.5%

Resolute Mining (ASX:RSG) (gold) +7.4%

Metals Acquisition (ASX:MAC) (copper) +6.4%

Eating losses 😭

Pilbara Minerals (ASX:PLS) (lithium) -16.1%

Latin Resources (ASX:LRS) (lithium) -13.5%

Arafura Rare Earths (ASX:ARU) (rare earths) -11.5%

Wildcat Resources (ASX:WC8) (lithium) -10.4%

Spartan shares rose as the gold explorer announced a third gold discovery underground at its Dalgaranga gold project to complement the Never Never and Pepper finds that have transformed the once struggling producer into a $1.6 billion developer.

Resolute shares lifted as it announced the second US$50 million tranche of a US$160 million payment to settle a tax claim from the government of Mali.

The US$80 million initial payment was made after boss Terry Holohan and other senior exployees were detained in Bamako.

As for the losers it’s largely battery metals for the second straight week, with Pilbara Minerals copping more than 20% of votes against a proposal to approve long term incentive performance rights to MD Dale Henderson at its AGM this week.

The Pilgangoora mine owner is down ~40% over the past six months.

At Stockhead, we tell it like it is. While Spartan Resources is a Stockhead advertiser it did not sponsor this article.