One single fact that is hugely influencing the Chinese and International aluminium market is Indonesia’s imposition of tax on the export of raw minerals from the country, especially bauxite. Indonesia has zeroed on the partial ban on exports of all kinds of raw minerals from the country from 6th May and has imposed strict export tax on those who obtain the permits to do so. Interestingly, Indonesia has decided to control export by heavy taxation instead of imposing a total ban. The government has declared that 20 percent to 50 percent tax will be imposed on 14 unprocessed minerals which will draw revenue to state funds and control mining-related environmental damage.
Indonesia exported around 40 million tons of bauxite last year. The Indonesia Mining Association aims at cutting the export by around 75 percent by the end of this year. When we look into China, they are heavily dependent upon Indonesia for nickel-ore and bauxite stock of their smelters. Once the 20% export tax on bauxite comes into effect and bauxite import gets restricted and expensive, China’s domestic alumina prices are expected to get affected to a considerable extent.
There are a few factors which will actually prevent immediate hike in domestic alumina price in China. The prevailing weak domestic aluminum market and high stock levels of imported alumina at Chinese ports will prevent immediate hike in price. Chinese alumina market will take some time before experiencing the full impact of Indonesia’s new bauxite export policy. China has already started working on this regard since March expecting a ban from Indonesia. China’s imports of bauxite rose 12.9 percent from a month ago to 5.27 million tons in March. The March inflows increased 49.7 percent from the last year.The available imported alumina stock at Chinese ports is around 700,000-800,000 mt, and those are offered for sale at around Yuan 2,700/mt.
The tax will add about 2 percent more cost to marginal aluminum production as 24 percent of China’s smelting capacity uses Indonesian bauxite. Last year, China sourced about 75% to 80% imported alumina from Indonesia. With such sole dependency on Indonesian bauxite, the domestic alumina price is sure to get affected sooner or later, no matter what the domestic conditions turn out to be. And this will surely have a rebound effect on the price charts of LME and SME aluminium.