A Metal Better Than Steel: The ‘New Steel’

A wave of anxiety has hit the resources sector this year.

The price of iron ore is plumbing multi-year depths. At less than US$95 per tonne, the metal’s spot price has declined by more than 30% in the past six months. That’s put mining stocks on the nose with many investors.

I’ll leave the iron ore debate to Money Morning’s resource analyst Jason Stevenson. Jason’s an expert in analysing global commodity markets. As the analyst for Australian Small-Cap Investigator, my beat is small-cap stocks.

So why is a small-cap guy writing to you about commodities?

Well, it’s simple. An often-overlooked corner of the resources world is getting more and more exciting. It’s a subsector where the stars are aligning for small-cap success.

This story is as much about industrial technology as it is about resources. That’s why it’s on my radar. Let me explain…

The exciting ore I’m talking about is bauxite. It’s the world’s main source of aluminium.

China is the world’s dominant producer of alumina and aluminium. It needs bauxite to kick those processes along. Because its domestic reserves are low quality and in short supply, China is a voracious consumer of imported bauxite.

When I say ‘voracious’, I mean it. China pulls in eight million tonnes of the stuff every month. Bauxite imports to the Middle Kingdom are running at record levels. So the demand side of the ledger is well established.

Looking at the supply side, there are only a few bauxite-rich areas in the world. As you can see in the chart below, Australia’s bauxite resources rank second in the world (21%) after the Republic of Guinea. ‘The lucky country’ indeed.

The fine balance in supply and demand dynamics means that when a big chunk of supply disappears, dramatic shifts happen elsewhere in the bauxite market.

That’s exactly what we’re seeing now. Indonesia has banned the export of several mineral ores…including bauxite.

The Indonesian authorities say they want more value-add from their resources. But I’m puzzled as to why they would choose this way to go about it.

Read the rest of this article at Money Morning