SYDNEY, Jan 31 (Reuters) – China has found an inadvertent ally in its efforts to slim down a bloated aluminium sector, with Indonesia’s ban on exporting metal ores set to boost costs of the raw material bauxite and pile more pressure on struggling smelters.
Beijing has been issuing broadbrush rules aimed at reining in overcapacity in sectors such as aluminium and steel for about a decade, but plans have usually been thwarted by resistance from local governments anxious to boost growth.
In the aluminium sector, ageing and inefficient smelters are already grappling with rising power prices, but now face potential bauxite shortages after Indonesia halted ore shipments on Jan. 12, as part of efforts to make miners process minerals at home.
China is the world’s biggest aluminium producer and curbing expansion could ease a global surplus of the metal and even lead to the country resuming sizeable imports of refined aluminium. It is also likely to provide support to the price of a metal that has been depressed for years.
“(Indonesia’s ban) will have a huge impact on the Chinese aluminium industry in the medium term,” said Citi China commodities analyst Ivan Szpakowski.
Despite building up big stockpiles ahead of the export ban, Chinese aluminium makers may struggle to find alternative supplies at similar prices.
It takes roughly five tonnes of bauxite to produce one tonne of aluminium. Analysts estimate China has around 10 months supply of bauxite stockpiled after importing 48 million tonnes from Indonesia alone last year, up 79 percent from a year earlier.
“China’s bauxite stocks may be used up around the end of this year and refineries would need to import,” said a manager at a big Chinese aluminium smelter.
But bauxite prices are likely to be higher by then and drive up alumina and aluminium prices, added the manager, who declined to be identified as he was not authorised to speak to media.
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