Bosai Minerals Group Co., China’s largest bauxite producer, said Thursday that it would invest $1 billion to build an alumina plant in Indonesia, a move that could set a template for Chinese metal producers to bypass Jakarta’s restrictions on exports of unprocessed metal ores.
The plan underscores how China is reshaping Indonesia’s mining sector and potentially carving a role in helping the Southeast Asian nation redress a growing trend of trade deficits.
“We have a preliminary agreement to invest in alumina production on a small island in Indonesia,” Zhang Yonghua, secretary to the board chair, told the state-run Xinhua news agency.
An official in Bosai’s executive office in the southwestern city of Chongqing confirmed the company’s plans.
Alumina is the processed intermediate product made from mined bauxite and turned into aluminum by electrolysis.
Indonesia was China’s top bauxite supplier until Jakarta introduced a 20 percent export tax on 65 unrefined mineral types in mid-May, ahead of a full ban expected in 2014. Indonesian exports account for 80 percent of China’s bauxite consumption.
The restriction, aimed at boosting domestic value by pushing miners to process ores before exports, lopped Indonesia’s bauxite exports to China to just 187,355 tonnes in June, from a record 5.6 million metric tonnes in May.
The June figure was down 93 percent from a year earlier.
Bosai said the planned facility would produce two million tonnes of alumina a year and potentially double the company’s alumina production capacity to four million tonnes.
The company has expanded capacity in the past three years and has said it is looking to spend $2 billion to $3 billion on overseas bauxite acquisitions, including the Indonesia project, and $150 million on a project in Guyana. Privately held Bosai also said it is developing a bauxite plant in Ghana.
Bosai’s moves could soon be matched by other large alumina producers in China’s competitive aluminum industry as aluminum oversupply weighs on production margins.
“We would expect to see further upstream investment in Indonesian facilities by Chinese producers as they attempt to hedge the ongoing potential risk of a full Indonesian export ban on unprocessed materials,” Macquarie Commodities said Thursday.
Indonesia also is China’s top supplier of nickel ore. Exports similarly fell sharply after Jakarta’s mid-May policy.
Xu Lejiang, chair of Baosteel Group Corp., China’s bellwether steelmaker, said in May that China’s stainless-steel output would be hit in the short term as a result. -By Chuin-Wei Yap