Bauxite prices boosted by temporary ban on mining in Malaysia

Operations to clean areas affected by bauxite mining in Kuantan, Pahang, began on Jan 14, 2016.
Operations to clean areas affected by bauxite mining in Kuantan, Pahang, began on Jan 14, 2016.PHOTO: THE STAR/ ASIA NEWS NETWORK

KUALA LUMPUR (BLOOMBERG) - Bauxite mining in Malaysia went on a tear after neighbouring Indonesia banned exports, transforming an industry that hardly existed until 2013 into China's biggest supplier.

In September alone, China bought a record 3.7 million metric tonnes of Malaysian aluminum-rich bauxite. It was a US$170.8 million (S$244.3 million) windfall for the oil palm-covered hills in eastern Pahang state, where dozens of companies have rushed in, paying smallholder-farmers for their land to be dug up.

Now, chunks of farmland resemble moonscapes of bauxite quarries and dusty rock piles, which some residents, including Pahang royalty, say have polluted the environment. In response, the government halted mining on Jan 15, starting a three-month moratorium to gain control over an industry that has exposed gaps in Malaysia's mining laws.

"If everything followed standard procedure, this would not be happening," said Mr Teh Teck Tee, managing director of Aras Kuasa, who began mining bauxite near the city of Kuantan in mid-2014 and exports solely to China. He is hoping the moratorium will enable the authorities to root out operators without proper permits and allow exports to resume with better control and compliance, he said. "This will wipe out the illegal. It's good."

Pahang, the largest state on Peninsular Malaysia, accounts for more than 70 per cent of the country's estimated 109.1 million tonnes of bauxite reserves. Mining of the ore, used to make aluminum, surged last year after Indonesia prohibited the raw material from being sold overseas. China, instead, bought almost 21 million tonnes from Malaysia, valued at US$955.3 million, in the first 11 months of last year.

Within months, quiet roads winding through the hills behind the city of Kuantan, about 250km east of Kuala Lumpur, became congested with trucks. When red ore dust seeped into rivers and the sea, and dead fish washed up on nearby banks, residents reacted to the pollution, torching transport vehicles, according to Mr Andansura Rabu, who represents the seat of Beserah in the state assembly.

The Department of Environment has conducted "several tests" on water samples from rivers said to have been affected by bauxite to determine their safety, Minister of Natural Resources and Environment Wan Junaidi Jaafar said on Friday in an e-mailed statement. He did not elaborate on any findings or say when the results would be ready.

Bauxite mining, meantime, has ground to a halt in Prime Minister Najib Razak's home state of Pahang. About 400 police and other government agency officials have been deployed to enforce the temporary ban and eight checkpoints have been established to check for any illegal operations, Mr Wan Junaidi said.

While some residents have welcomed a break from the steady stream of ore-hauling trucks, those reliant on the industry, including about 250 farmers in the Felda Bukit Goh area whose land was mined on, are frustrated by the loss of income.

"I want to beg the government, don't let this drag on," said Mr Nik Abdul Majid Nik Sin, a 72-year-old farmer, who set aside half of his 4ha oil palm grove for mining after bauxite was discovered there around 2013. "What can I eat? My trees have been chopped, I have to wait for bauxite."

It is activities on such small plots that led to out-of-control mining, said Mr Fuziah Salleh, an opposition parliamentarian for Kuantan. Because much of the bauxite-rich ground is owned by smallholder palm oil producers, orchardists and vegetable-growers, companies could pay the farmers to mine their land without having to undertake an environmental impact assessment - a requirement when the land area exceeds 250ha, she said.

"Greed and corruption, coupled with poor regulations and enforcement, have led to an environmental disaster," Ms Fuziah added. "Our local economies, such as the fishing and tourism industry, which we have been dependent on for generations are destroyed. This environmental catastrophe will take years to rehabilitate."

Mr Wan Junaidi's ministry will hold a three-day workshop starting on Wednesday "to review all the rules, procedures, guidelines related to the mining and export of bauxite, and propose improvements", he said. The review will cover mine management, transportation, stockpiling ore and the procedure for applying for export permits. Proposed improvements will be presented to the federal government for approval and implemented after the moratorium expires, Mr Wan Junaidi said.

"All allegations alleging that the ministry has ignored the bauxite problem and hadn't done enough to solve the issue is obviously not accurate," the minister said.

Government action is coming too late for some. Residents erected barricades to stop trucks entering housing areas and spilling their contents, said kindergarten proprietor Mardhiyah Mat Hussin. Some lorries even overturned negotiating sharp corners, she said, adding that outdoor play at her nursery school had to be curtailed because of air pollution caused by bauxite dust.

"We kept thinking this bauxite thing will all stop soon, but it didn't," Ms Mardhiyah said. "We collected signatures at the local mosque, but nothing seemed to work."

After investigating allegations of malfeasance, Malaysia's anti-graft agency concluded on Jan 6 that there were "elements of corruption" involved in the extraction of bauxite. The next day, it said it detained state government officials in Pahang suspected of taking bribes from unlicensed miners to protect them from enforcement action, it said.

Under current arrangements, the state receives royalty payments from bauxite only after the ore is shipped, Pahang Chief Minister Adnan Yaakob told the New Straits Times this month. He wants the system changed as part of the government review.

They will need to move quickly. Malaysia's bauxite reserves may be depleted in less than five years, based on last year's extraction rate. Chinese alumina refineries may instead seek bauxite from suppliers in Australia and Guinea, according to Mr Jackie Wang, a Beijing-based consultant at researcher CRU Group.

Malaysia's bauxite prospects depend on cost, said Mr David Wilson, a metals analyst with Citigroup in London. "If the mining is low-cost and it's easy to ship and the miners can improve their environmental management, then it could come back for a while," he said.

The mining hiatus may be good for prices, said Mr Adnan, Pahang's Chief Minister. "When the supply is low, what will happen? Price will go up," he said. "This is a blessing in disguise for the players. If I were them, I would enjoy this moratorium period."