January 6, 2016 / 8:55 AM / 4 years ago

UPDATE 2-Malaysia imposes 3-month ban on bauxite mining; may dent China stockpiles

* To ban bauxite mining for three months, effective Jan. 15

* To also freeze new bauxite export permits for the period

* Malaysia warns ban could be extended if firms do not comply (Recasts, adds trader and analyst comment)

By Rozanna Latiff

KUALA LUMPUR, Jan 6 (Reuters) - Malaysia imposed a three-month ban on bauxite mining following an alarm over its environmental impact, in a move that could dent stockpiles at the world’s biggest buyer of the aluminium-making ingredient, China.

Malaysia’s largely unregulated bauxite mining industry has boomed in the past two years to meet demand from top aluminium producer China, but the frenetic pace of digging has led to a public outcry with many complaining of water contamination and destruction of the environment.

Just last month, bauxite mining was blamed for turning the waters and seas red near Kuantan, the capital of Malaysia’s third-largest state and key bauxite producer Pahang.

“Everything (bauxite mining) will come to a complete stop on Jan. 15,” said Wan Junaidi Tuanku Jaafar, Malaysia’s natural resources and environment minister. The ban may be extended if mining firms do not comply with regulations, he cautioned.

In the first month, stockpiles at the Kuantan port will be cleared and cleaning facilities will be installed, while in the second month, stockpiles in 11 other locations will be cleared, Wan Junaidi said on Wednesday.

Regulations will be imposed on the transport of bauxite as well as cleaning of mining sites, the minister said.

“The Cabinet has decided to leave it to the industry to take measures to protect the environment. But if they cannot do what we, the federal and state governments, want them to do, then we will have no choice but to extend the moratorium.”

Malaysia will also freeze new bauxite export permits for the three months, although existing permit holders can export from their stocks over the period.

“I see little to no impact on China (aluminium production), unless things change at the end of the three months,” said Paul Adkins, managing director of Beijing-based consultancy AZ China. “Exports will continue, using the stockpile at port.”

The three-month mining ban could shave about 6 million tonnes off China’s current bauxite stockpiles of around 25-30 million tonnes, Adkins said earlier this week.

Malaysia accounted for over 40 percent of China’s 49 million tonnes of bauxite imports across January to November last year. In 2013, it had shipped only 162,000 tonnes to China.

The Southeast Asian nation has been exporting increasing amounts of the raw material to China, filling in a supply gap after Indonesia banned bauxite exports in early 2014.

While a longer Malaysian mining ban could prompt China to look to other suppliers such as Australia or India for bauxite imports, industry participants do not expect Malaysia to extend the ban as bauxite mining brings in a lot of revenue.

“In the short-term, the ban will be a heavy blow to the industry. But in the long run, with proper procedures and if everyone can do it in the right way, bauxite mining should be a good thing,” said Johnny Wong, director at Kuantan-based bauxite miner Ideal Mineral Resources Bhd. (Additional reporting by Melanie Burton in Melbourne, writing by Praveen Menon; Editing by Himani Sarkar)

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