Prospects for bauxite

Feb 07, 2010 Editorial

The fallout from the overreach and bluff by the Bauxite Union (GB&GWU) at Rusal’s Berbice operation continue to dominate the headlines even as the company attempts to stabilise its operations in the face of a prolonged weak aluminium world market.
The Chinese owned Bosai operation and their union have generated less drama although, facing the same pressures, their production levels – and manpower requirements – have also had to be curtailed in the last year.
And therein lies one of the signposts to the prospects of a revived bauxite industry in the near term – the willingness of the unions to appreciate the effects wrought by globalisation in general and in the aluminium/bauxite industry in particular and to adapt accordingly to the new environment.
Since the seventies, both the production and marketing ends have undergone seismic changes. China in now the elephant in the room in both those areas but the production end has become much more diversified.
There are now more choices in sourcing bauxite. Even when the market recovers, the unions – especially the GB&GWU will have to move from their old reflexive posture of confrontation and work collaboratively with the bauxite companies to guarantee reliable supplies of their raw materials. They have to realise, if they have not done so after forty years of witnessing our inexorable loss of markets, that unreliability of supplies was the major reason for our relative demise in bauxite in the seventies. Production and worker indiscipline played a major role in that process.
We should note that in the downturn, aluminium producers have not been standing still. Rusal has shut down their operations in Jamaica that was larger than ours, because of unsustainable costs. And we would know that unlike our bauxite, which can be mined only after hundreds of feet of overburden have been removed, theirs was practically on the surface giving them a huge cost advantage. Their Italian operation was also shut down. Every producer has had to curtail production and workers have had to share in the cost cutting initiatives necessary to stay afloat.
While the long-term prospects for the industry is solid since aluminium is a key component in the industrialisation drive of the emerging economies such as BRICS, because of the world recession, stocks have piled up to such an extent that even if growth resumes its upward trajectory, it will take a year or two for production in bauxite and alumina to really reap the benefits.
Until then, the entire industry will continue with its cost-cutting regimes. The marginal high-cost producers and those that are unwilling to make the necessary changes to improve efficiencies will have to close.
And it is not only a matter strictly of costs being driven from the production process. The wave of consolidation that swept the industry in the nineties left the surviving behemoths such as Rusal and Rio Tinto with huge debts that have to be serviced.
Last week, Bosai bought out the mining giant Rio Tinto’s 80 per cent stake in Ghana Bauxite Company; in 2007 Rio Tinto had acquired Alcan and to date has sold off over US$10 billion in assets to service its debts. We have repeatedly stressed the debt burdens of Rusal over the last two years. It is no use unions saying that the incurred debt is a problem for management: all will have to be involved to ensure the companies remain viable.
China, which has long been the largest producer of aluminium, will be key to the recovery of our bauxite industry. China has continued to increase its share of global aluminium demand to around 35%, and we expect this share to continue to increase out to 2013. Both Rusal and Bosai supply the Chinese market.
Because energy costs are a major factor in the manufacture of aluminium (as well as its intermediate input of alumina from bauxite) the Gulf States are becoming major players in the aluminium industry since they have captive, low cost natural gas. Maybe President Jagdeo could use his contacts in the Mid East to encourage their aluminium producers to explore our Essequibo region that has huge reserves of bauxite, so that their supplies could be secured.