Daily Archives: May 7, 2012
We have seen reports in the Chinese press today that Indonesia has announced a tax on bauxite exports. Effective May 6, a new commodities export tax of 20% is applied to all bauxite exports. We haven’t seen the Indonesian announcement directly, but it has been reported widely inside the Chinese press.
Our calculations show that this will have a flow on effect of about RMB300 per tonne to the cash cost of producing raw aluminium. Unfortunately for the Chinese industry, the Indonesian tax goes into the CIF price, and that attracts Chinese VAT.
The Indonesian bauxite virtually all goes into Shandong province, where a handful of alumina refining companies process the material, mostly for their own downstream smelters. We estimate that only a relatively small percentage of the bauxite/alumina ends up into the open alumina market.
In any case, a change in the cost of production of around RMB300 is likely not going to change the dynamics of the Chinese aluminium market. If anything, the floor price for alumina will gradually rise, and that will support the raw metal price, which rose as a result of the announcement.
We will have more to say on this topic as the dust settles.
Late update – we have now seen the Reuters announcement, confirming the 20% tax.