Australia cashes in on bauxite boom, fuelled by Chinese demand

Production of bauxite, the major source of aluminum, is accelerating steadily according to the latest reports. Strong project pipelines in Australia and India are the main growth catalyst, with 5 of Australia's bauxite mines currently providing over a quarter of global supply.

Rio Tinto posted a 3.9% output increase from its bauxite operations in Australia for Q1 of this year. The mining corporation has stepped up production from it Gove and Weipa mines and will begin work on its US$1.9 billion Amrun Project at the start of 2017. Australia is predicted to remain the dominant bauxite exporter to China over the coming years with Guinea also emerging as a key supplier; bolstered by high grade reserves and a growing pipeline of projects.

China's domestic bauxite production is expected to stay sluggish over the coming years, due to weak prices and a decline in the quality of its reserves. According to BMI Research data, the country is projected to account for 55.7% of global aluminum supply in 2016, but only 23.3% of bauxite production, fuelling an increase in imports and a rush of investments in overseas mining projects. In the past decade China's bauxite imports have jumped from 2.2 million to 50 million tonnes annually, leading experts to predict a decade long boom for the commodity.

The autos industry has driven global appetite for aluminum over the past year, despite fears that increased production from China will saturate the market. Aluminum use in car body structures is expected to reach 75% by 2025, with the US market's growing sales of pickup trucks boosting production demands. But smelters in both China and the US were shut down last year after prices for the lightweight metal dropped to their lowest levels since 2009. As production margins continue to make a steady recovery through 2016, China has once again started to step up its exports, dragging aluminum prices back down from 6 week highs on Monday.

India's bauxite production has typically remained in line with aluminum output and is expected to increase this year on the back of domestic demand. Analysts are expecting an annual growth rate of 17.7% in bauxite production through 2020, a dramatic increase from the previous five years. India is forecast to generate 8.2% of global output this year, but investors remain tentative over the impact of pending environmental restrictions and recent clashes with local activists.

Malaysia's ban on bauxite mining in the country is expected to be relaxed by September 2016, according to analysts. The country's position as one of China's main exporters in recent years quickly took an environmental toll, resulting in government restrictions to curb production back in January. Malaysian ministers emphasized a critical need to control the environmental impact and regulation of previous bauxite mining projects before the ban could be lifted.

The Indonesian government is also working to revise its exports ban on the mineral ore by the end of the year. The country is expected to ramp up production domestically, with an annual increase of around 148% by 2020. China's Hongqiao Group has invested heavily in a new Indonesian smelter facility, which is projected to reach capacity by 2017, driving significant growth and output.