Alcoa has continued the trend for vertically integrated aluminium producers to sell their bauxite to third parties, with a new sale agreement for its Australian bauxite announced on Tuesday.
In their first contract to sell bauxite from Western Australia to a third party, Alcoa and its Australian joint-venture partner Alumina Limited have agreed to sell 400,000 tonnes of bauxite from the Huntly mine near the town of Dwellingup.
The joint-venture partners did not disclose the buyer of the bauxite, but it is almost certainly a Chinese alumina refinery, given China is facing a shortage of both alumina and bauxite, and is the world's biggest producer of the end product: aluminum.
While the supply contract is small by the standards of most bulk commodities, it is notable because it builds on the bauxite export trials conducted by Alcoa and Alumina Limited in the Australian winter of 2016.
The Western Australian government has given Alcoa and Alumina Limited permission to export 2.5 million tonnes per year for the next five years.
"Bauxite exports have the potential to generate greater value from our WA mineral lease creating additional revenue streams for Alcoa and the state of WA, while maintaining supply to our three WA refineries," said Alcoa's bauxite president Garret Dixon.
As recently as 2005 China imported just 2 million tonnes of bauxite, but by 2015 that volume had climbed to 51 million tonnes, according to a recent presentation by the other major Australian bauxite exporter, Rio Tinto.
Alcoa said it expects demand from China to continue surging.
"Alcoa projects that the market for third party bauxite demand will double between 2015 and 2024 with China the biggest importer of bauxite," the company said in a statement on Tuesday.
Alcoa and Alumina Limited are already selling bauxite to third parties from their Brazilian bauxite mines, and the new sales agreement for the Huntly mine takes the total value of third-party bauxite sales in 2016 and 2017 to $US600 million.
The Huntly exports are also notable for South32, which mines bauxite from an adjacent mine. But so far South32 has resisted the temptation to export bauxite, preferring instead to supply it to its nearby Worsley Alumina refinery.
Rio's bauxite sales to third parties have been soaring in recent years, from 13 million tonnes in 2010 to about 30 million tonnes in 2016.
Those third-party sales volumes are likely to continue soaring, given Rio has committed $US1.9 billion to expanding its bauxite production base near Weipa in Queensland.
Named Amrun, Rio's bauxite expansion project is expected to produce 22.8 million tonnes of bauxite per year by the end of 2019.
About 12.8 million tonnes of Amrun's 22.8 million tonnes will be replacement tonnes for exhausted mines, meaning that actual supply will increase by about 10 million tonnes.
Several junior miners are also aspiring to export bauxite from Australia, most notably ASX-listed Metro Mining, which is in the process of acquiring unlisted company Gulf Alumina.
The takeover allows Metro to merge Gulf's project with its own, and gives it a significant position in the Gulf of Carpentaria, not far from Rio's Weipa hub.
Bauxite, measured by Alan Clark's thebauxiteindex.com, was fetching $US50.3 per tonne on Monday.
