Unfortunately, utilisation of this industrial waste in China has remained low to the concern of the authorities and environmentalists. According to China Non-ferrous Metals Industry Association, utilisation of red mud, which is a toxic by-product posing serious environmental risk, in the country was a low 7.6% of annual generation of 105m tonnes. All these problems also create opportunities of lowering risks associated with progressively growing dependence on raw material imports, in the present case bauxite and avoiding local disposal of red mud by building alumina refineries abroad.

As China contends with the challenge of seamless feeding of its smelters with alumina, major bauxite producing countries led by Indonesia want local value addition to bauxite by way of building greenfield alumina refineries. The world’s sixth largest owner of bauxite reserves Indonesia banned exports of the ore beginning mid-June last year forcing refineries in China to buy larger quantities from other traditional suppliers. In the not too distant a past, Indonesia put a ban on exports of several mineral ores, including bauxite from 2014 to July 2017. So Indonesian bauxite denial signals were reaching Beijing with increasing force over the years along with invitation to invest in alumina refineries and aluminium smelters.

Not less than half a dozen Chinese groups are now present in Indonesia’s aluminium sector. Jakarta’s resolution not to export bauxite aside, local availability of good quality bauxite and low ash coal and a fairly developed infrastructure make Indonesia an ideal aluminium chain investment destination for Chinese groups such as Shandong Nanshan Aluminium. Chinese investments also fit in well with Beijing’s Belt and Road initiative (BRI) and “going out” initiative. In recent times, China’s investments go beyond Indonesia to various sectors, including aluminium chain in southeast and south Asian countries.

In the meantime, Guinean authorities are becoming increasingly vocal that companies active in bauxite mining should also build alumina refineries in the downstream. This will help in channelling mineral wealth into economic development through value addition, the argument goes and rightly so. The value addition campaign has yielded success for the second time by way of Emirates Global Aluminium (EGA) through its subsidiary Guinea Alumina Corporation signing a non-binding agreement with the Guinean authorities to build a 2m tonne alumina refinery in west Guinea. The first phase of the 4bn project sought to be commissioned by September 2026 will have capacity of 1.2m tonnes. That EGA will have Alumina Corporation of China (popularly known as Chinalco) as partner in the Guinean project bears testimony to growing Chinese influence in the Middle East besides West Africa. Guinea’s only operating alumina cum bauxite complex is owned by Rusal of Russia.

Such offshore activities, including aluminium chain capacity building in countries with which China has good political and trade relationship, are prompted by a combination of some Chinese domestic compulsions and external pressure of resource nationalism. In its pursuit of carbon neutrality, China in 2018 put a ceiling of 45.43m tonnes on aluminium smelting capacity. According to state-backed research house Antaike, the aluminium industry had at its disposal annual production capacity of 44.43m tonnes by 2023 end, leaving little room for growth.

Earlier in 2013, Beijing introduced capacity replacement scheme for highly polluting and coal-based energy consuming industries, including aluminium. Capacity swapping will allow green signalling of new projects against closed and idled units. The policy is basically highly restrictive of new capacity coming on stream forcing aluminium groups to look for opportunities abroad. According to Antaike, Chinese groups have plans to build 8m tonnes of aluminium smelting capacity (equivalent to 18% of the 2022 domestic capacity in China) abroad, in most cases along with upstream operations in countries that have acceded to BRI.

The world’s biggest alumina and aluminium producer has a structural weakness that makes the industry responsible for more than three-quarters of CO2 emissions from the country’s metals industry. This is because Chinese smelters and also upstream refineries are very largely dependent on coal-fired electricity. Things no doubt have started changing for the better with more and more smelters using power from renewable sources (hydro electricity and a mix of solar and wind power). But it is going to be a long haul, for a report by the International Aluminium Institute says as much as 82% of energy used in making primary aluminium in China 2021 came from thermal power plants against global average of 57%.

In the context of China’s aluminium industry move to decarbonisation – much of the quest hinges on use of variety of energy – smelters dependent on thermal power in various parts of the country are found to be gradually shifting some capacity to Yunnan province where hydroelectricity is available. In fact, in view of hydro power-based decarbonisation opportunities, the provincial government has set an annual primary aluminium production capacity target at 8.26m tonnes. But as has been happening since 2021, the local government is rationing power supply to aluminium smelters during the low water season from December through April. S&P Global Commodity Insights estimates the running primary aluminium capacity of Yunnan at 5.7m tonnes. Enforcement of power curbs that came into force in November 2023 due to drought condition meant, according to market intelligence, smelting capacity resting of around 1.1m tonnes.

Mercifully, return of rains to seasonal norms from May beginning stepped up hydro electricity production enabling growing volumes of primary aluminium to come online. From a low smelting capacity use of close to 70% in March, it was past 80% in May and should be over 90% in June. China observers have come to believe, based on happenings since 2021 that Yunnan smelters home to fourth largest capacity among all regions in the country are likely to be required to curb production in future during low water season months. A smelter in Inner Mongolia too had to contend with serious power supply issue. The point is Chinese smelter operation is on a scale that dislocations of the above kind leave a global impact on demand and prices of upstream alumina and bauxite prices. (IPA Service)