Australia and Malaysia have emerged as two of the key beneficiaries of Indonesia’s decision to ban exports of bauxite, according to Italian broker Banchero Costa.
The bauxite trade represents one of the top five dry bulk cargoes globally and volumes have increased about 40% in the past five years.
China is both the largest consumer and importer of bauxite in the world, accounting for about 75% of global bauxite imports.
Up to 2013, Indonesia was its largest supplier of the commodity, accounting for about 70% of China’s total imports of bauxite, which is the main source of aluminium.
But in January 2014, Indonesia imposed an export ban on unrefined minerals, which virtually halted bauxite exports out of the country.
The ban was imposed so as to encourage foreign companies — particularly Chinese firms — to invest in smelting and processing facilities in the country.
However, Indonesian bauxite shipments fell from 57 million tonnes in 2013 to just eight million tonnes in the first year of the export restriction.
According to Banchero Costa, it was expected that the huge stockpiles of bauxite built up in China before the Indonesian ban was imposed would last for about one year. But stocks are said to have declined quicker than anticipated as a result of poor-quality ores.
In the first two months of this year, Banchero Costa says Australia exported 1.5 million tonnes of the raw material to China — about 58% of its imports.
Australia has the second-largest bauxite reserves in the world with 23% of global volumes — about six billion tonnes — and sits just behind Guinea, which has 26%. However, sovereign risk in the West African nation has restricted development of the industry to a fraction of its potential, the broker says.
Australia is said to have significantly invested in bauxite production in recent years, increasing it by almost 25% since 2009.
Its bauxite export volumes rose 6% in 2014 to 19 million tonnes, having grown almost 50% in 2013. Around 96% of Australian bauxite exports in 2013 were to China.
“Australia became the largest exporter of bauxite to China in March 2014,” said Banchero Costa. “Australia has stepped up exports to fill the gap left by Indonesia. However, a build-up in stocks prior to the ban has delayed the benefit to Australia.”
Elsewhere, Malaysia has also increased bauxite export volumes to China significantly, from only 160,000 tonnes in 2013 to 3.3 million tonnes in 2014, while volumes are expected to reach 10 million tonnes this year.
Malaysia is seeing strong demand for bauxite despite concerns over the safety of cargoes following the sinking of the 56,000-dwt bulker Bulk Jupiter (built 2006) over the New Year period in a suspected case of cargo liquefaction.
Despite variable ore quality, Banchero Costa says many Chinese firms are developing mines in the country, with Malaysia’s proximity to China offering advantages in terms of freight costs.
“Malaysian bauxite exports to China in the first two months of this year were 20 times those in the same period last year,” the broker said.
It adds that mines are “springing up in Malaysia” in order to take advantage of the supply gap left by Indonesia’s ban.
In addition, India increased its share of China’s bauxite imports from 5% in 2014 to 22% in the first two months of this year.
West Africa, South America and the Caribbean also export significant volumes of bauxite, although sea freight costs can be more than double those from Australia and Indonesia.
Meanwhile, Vietnam has recently begun pushing out bauxite after strict nationalistic policies previously held back exports.
Banchero Costa says new trade routes are also developing as a consequence of the Indonesian ban and they are expected to increase tonne-mile demand.
Traditionally, bauxite cargoes were carried on panamax vessels but, more recently, they have been moved on supramax and ultramax ships, primarily serving the Indonesian-China trade.
“With reduced volumes out of Indonesia and potentially higher tonne-mile demand, it is increasingly likely more bauxite will be carried on larger, gearless tonnage, which would not have been an option on Indonesian trades,” said Banchero Costa.
However, with rumours that Indonesia could be relaxing the ban on bauxite exports, the broker says the overall impact is hard to predict.
