Singapore 04/01/2016 - Market participants expect only a limited impact on China's aluminium production should a mining ban limit bauxite exports from Malaysia to China.
According to Malaysian media reports, the government is looking to halt bauxite mining in Kuantan, the capital of peninsular Malaysia's largest state of Pahang, after rampant mining resulted in water and air pollution in the state capital.
Australia and India are also major suppliers of bauxite to China - the country does not depend on Malaysia for imported material, sources said.
China imported some 20.5 million tonnes of bauxite from Malaysia in January-November 2015, which accounted for 42 percent of its total imports during the period. In the first 11 months of last year, 17.55 million tonnes and 6.8 million tonnes of bauxite had come from Australia and India respectively.
"[The possible mining halt] is not a very big problem. Bauxite from Malaysia and Australia had stepped up to replace those from Indonesia over the past few years [but] what we get from Malaysia alone is way less than what we imported from Indonesia," a Beijing-based metals analyst said.
Indonesia banned the export of unprocessed mineral ores, including bauxite, from the start of 2014. Since then, the vast majority of bauxite imports to China have been from Malaysia, Australia and India.
As well, Chinese alumina refineries are also unlikely to face any shortages of bauxite - the Chinese market has around six month's of bauxite stocks, a Shanghai-based aluminium analyst said.
Demand for bauxite is also weak while Chinese alumina refineries - as in the rest of the domestic aluminium sector - are cutting production amid overcapacity and sluggish demand, sources said.
While market participants agreed that any mining halt in Malaysia would have limited impact on the Chinese market in the near term, the long-term impact is uncertain.
"Should Malaysia curtail its bauxite exports, it could lead to higher prices for bauxite from other countries and hence higher costs for downstream users. It all depends on how the policies unfold in Malaysia, which could still take some time to finalise," the second analyst said.
The news failed to lift aluminium prices on the Shanghai Futures Exchange on Monday. The most active March contract closed at 10,630 yuan, down 190 yuan on its previous close.
(Editing by Mark Shaw)