Malaysia’s shooting-star bauxite industry faces burn-up
In this article (5)
Already under fire for widespread environmental damage, Malaysia’s once lucrative bauxite mining industry is facing a likely death knell from neighbouring Indonesia’s move to allow a resumption of exports.
This time last year, Malaysia was the world’s biggest supplier of the aluminium-making raw material to top buyer China, but its exports tumbled after government action aimed at reining in the little regulated industry.
The latest move could spell the end for a sector that only sprang to life in late 2014 after Indonesia banned ore exports, and illustrates the risks facing miners across South-East Asia from increasingly uncertain government policy.
Copper giant Freeport-McMoRan Inc warned last week it could slash output from Indonesia amid a long-running dispute with the government, while the Philippines has ordered the closure of more than half the country’s mines on environmental grounds.
“Policy risk is huge in mining right now,” said Daniel Morgan, mining analyst at UBS in Sydney. “In supplier policy, you’ve got changes to Indonesia’s mining policy, the Philippines and Malaysia.” A host of mining operations sprang up along Malaysia’s bauxite-rich east coast to fill a supply gap after Indonesia in 2014 barred exports of mineral ores in a bid to push miners to build smelters.
In 2015, Malaysia shipped more than 20 million tonnes to China, well ahead of nearest rival Australia and up nearly 700% on the previous year. In 2013, it shipped just 162,000 tonnes.
But the dramatic rise came at a cost as largely unregulated miners failed to secure stockpiles of bauxite. The run-off from monsoon rains turned rivers and coastal seas red, contaminating water sources and leading to a public outcry.
The government imposed a mining moratorium in early 2016, and shipments to China from existing stockpiles fell to 165,587 tonnes in December, with little indication the government is set to change its mind.
Malaysia’s natural resources and environment ministry said any decision to lift the moratorium would be based on how well miners follow regulations to preserve the environment rather than economic gain.
“Policy risk is huge in mining right now,”
Recent rains in Kuantan have caused some bauxite runoffs from existing stockpiles, minister Datuk Seri Wan Junaidi Tuanku Jaafar told Reuters.
“The heavy rains proved that the mitigation was not adequate. Now by having this before me, I am not yet prepared to allow them to start the operations,” he said, declining further comment on the topic.
Indonesia introduced new rules last month that will allow exports of nickel ore and bauxite and concentrates of other minerals in a sweeping policy shift, but did not specify when it would resume exports.
The announcement could be the final nail in the coffin for Malaysia’s industry, as its miners expect China to switch to Indonesia’s better quality and cheaper ore, due to lower production costs.
“Indonesian bauxite miners kept a lot of stockpiles … They can sell cheap,” said a miner from local company based in Kuantan, a key bauxite mining area in the state of Pahang.
“If the volume coming out of Indonesia is over 10 million tonnes, Malaysia has to say goodbye.”
Unlike recent ructions in nickel supply from Indonesia and the Philippines that pushed up prices, Malaysia’s near exit from bauxite has had little impact on the supply chain as new suppliers emerged, particularly in Guinea in West Africa.
“Some of these commodities are pretty plentiful, like bauxite for instance,” noted UBS’s Morgan.
“When we talk to aluminium companies in China, we haven’t detected that they’re worried about a bauxite shortage.” The greater effect may be on Malaysia’s export-based economy where bauxite surged to become a key mineral shipped to China, its largest trading partner. At a bauxite price of US$50 a tonne, Malaysia’s 2015 exports were worth over US$1bil.
Questions & Answers
Q.Why did Malaysia's bauxite industry experience a dramatic increase in exports in 2015?
Why did Malaysia's bauxite industry experience a dramatic increase in exports in 2015?
The industry sprang to life after Indonesia banned ore exports in 2014, creating a supply gap. Malaysia's mining operations stepped in to fill this demand from top buyer China.
Q.What environmental problems led to government intervention in Malaysia's bauxite mining sector?
What environmental problems led to government intervention in Malaysia's bauxite mining sector?
Unregulated miners failed to secure stockpiles, causing run-off from monsoon rains to turn rivers and coastal seas red. This contaminated water sources and led to public outcry.
Q.How has Indonesia's recent policy change impacted the outlook for Malaysia's bauxite industry?
How has Indonesia's recent policy change impacted the outlook for Malaysia's bauxite industry?
Indonesia's decision to allow a resumption of bauxite exports could spell the end for Malaysia's industry. Miners expect China to switch to Indonesia's cheaper, better quality ore.
Q.What is the primary concern for the Malaysian government when considering lifting the mining moratorium?
What is the primary concern for the Malaysian government when considering lifting the mining moratorium?
The natural resources and environment ministry stated that any decision to lift the moratorium will be based on how well miners follow regulations to preserve the environment, rather than economic gain.
Reader pulse
Will Malaysia's bauxite industry recover?
17,270 votes so far