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The market for alumina and aluminum have dramatic growth potential as a result of both significantly increased demand and political and environmental factors affecting supply. Global Alumina is perfectly positioned to capture the demand of independent aluminum producers as it builds the first green-field refinery to be constructed in Guinea in more than 40 years.
Introduction
Historical Perspective
The Market Today
Overview of the Alumina Refinery Process
Frequently Asked Questions
Aluminum occurs naturally in the form of bauxite, an ore containing aluminum oxide (Al2O3), commonly called alumina. Alumina is first extracted from bauxite through a refining process and then converted to aluminum metal through an electricity-intensive smelting process.
Aluminum's unique characteristics, particularly its light weight, resistance to corrosion, high strength, and recycle-ability have made it an essential material for modern economies. Aluminum often substitutes as the preferred material for steel and plastics in automotive and building applications; copper in electricity production and transmission; magnesium, titanium composites and plastics in aerospace and defense applications; steel, plastics and glass in packaging applications; and wood and vinyl for building and construction applications.
As a capital-intensive industry, aluminum production has been dominated by large, vertically-integrated companies. Following sharp oil price increases in the 1970s, and because aluminum smelting is electricity-intensive, a number of independent smelters were started and grown in the 1980s and 1990s by parties controlling significant low-cost energy resources, most notably in Bahrain and Dubai. During most of this period, the global aluminum market grew at a slightly higher rate than world gross domestic product, driven largely by growth in the transportation sector and by technological advances that kept aluminum prices competitive. During this period, alumina supply to the independent smelters and the alumina-short consolidating aluminum groups in Russia and China was dominated by the major Western integrated aluminum companies. These companies were able to satisfy growing demand predominately through expanding and operating existing refineries at or near full capacity.
In the last decade, the industry has been substantially re-consolidating. Alcoa acquired Alumax, Inespal, Almix and Reynolds; Rio Tinto acquired Alcan which previously acquired Alusuisse and Pechiney; RUSAL and SUAL, each recently formed by consolidation of Russian smelters and CIS refineries, together with Glencore’s alumina assets were combined to form United Company RUSAL; Chalco being formed by consolidation of Chinese smelters and refineries. According to published figures, Alcoa, Chalco, Alcan, United Company RUSAL and BHP Billiton accounted for or controlled close to 60 percent of the 68 million metric tons of world-wide alumina production in 2006. On the order of 25 percent (18 million metric tons) of this total was consumed by alumina-short smelters, many of which are wholly-dependent upon market purchases, often from their aluminum market competitors, for this strategic raw material input.
Like many commodities, alumina is sold both on spot and contract terms. Alumina typically is priced as a percentage of the more liquid and transparent aluminum price quoted on the London Metal Exchange (LME). Contract terms historically have fluctuated in the range of 11.5 percent to 13.5 percent of the LME aluminum metal price. Spot prices have been much more volatile as the alumina spot market is a very thin market. With the recent surge in global demand, alumina spot prices sky-rocketed and contract prices tended toward the high end of historic norms.
Explosive growth in Chinese demand for aluminum, concurrent with the predictable, continued growth of global demand, leads most industry experts to forecast annual aluminum demand growth that exceeds world domestic product. Many call for growth greater than 5 percent representing more than five million metric tons per year. In March 2007, mining and metal industry consultants Brook Hunt predicted an increase in annual demand from 68 million metric tons per year in 2006 to 88 million metric tons per year by 2011.
Significant new alumina refining capacity will be needed within the next five to ten years to keep pace with the rapid growth in demand, and the exhaustion of brown-field opportunities in various markets thanks to issues such as bauxite depletion as in Jamaica; environmental, social and political concerns as in Australia; infrastructure limitations; availability of water and high operating costs. Global Alumina believes the lack of suitable low-cost bauxite reserves elsewhere will drive the industry to invest heavily in new refining capacity in Guinea which possesses more than one-third of the world's bauxite resources. The independent smelters lacking ownership interests in existing bauxite and alumina assets will lead the way.
To produce aluminum, bauxite ore must first be refined into alumina, a white granular powder somewhat finer than table salt. Alumina refineries around the world use the Bayer refining process to separate alumina from bauxite ore. This process involves four steps – digestion, clarification, precipitation and calcination— based on the fact that the solubility of aluminum hydroxides and aluminum oxy-hydroxides in caustic soda solution increases with increasing temperature and with increasing caustic concentration of the solutions.
Mined bauxite is crushed, ground and dissolved in caustic soda solution (sodium hydroxide) at increased pressure and rising temperatures. The resulting liquor contains a solution of sodium aluminate and un-dissolved bauxite residues containing iron-oxides, silica-oxides and titanium-oxides. These residues, commonly referred to as "red mud", sink gradually to the bottom tank and are removed.
The remaining clear sodium aluminate solution is pumped into a large tank called a precipitator. Fine particles of alumina are added to seed the precipitation of pure alumina particles as the liquor cools. The particles sink to the bottom of the tank, are removed, and then passed through a rotary of fluidized calciner to drive off the chemically combined water. The result is pure alumina. The caustic soda is returned to the start of the process and is used again. The diagram below illustrates the Bayer refining process.
Analysis of the components of the production cost of alumina shows that bauxite is the most important—typically accounting for as much as 30 percent of the total production cost of alumina. Also, bauxite has a cost effect beyond its simple cost as a raw material. The nature and quantity of the silica minerals in the bauxite fix the amount and, therefore, the consumption and cost of caustic soda needed to produce alumina. Bauxite and caustic together typically constitute 50 percent of the total production cost of alumina. However, there is a large variation in the cost of these components in different alumina plants based mostly on the quality of its bauxite feedstock, and the proximity of the refinery to the mine from which its bauxite is sourced.