The Indonesian government made a U-turn on its 2014 ban on the export of unprocessed bauxite and nickel concentrates last week.
The ban, which covered all unprocessed minerals, wiped out almost overnight a lucrative supramax trade ferrying bauxite and nickel ores to China, the biggest consumer of Indonesian minerals.
The ban was imposed to encourage mining companies to establish higher-value smelting industries within the Southeast Asian archipelago, but did not bring the desired result.
China instead looked elsewhere for its mineral supplies.
Mining industry data indicates that China, the largest consumer of bauxite, imported 71.6 million tonnes of bauxite in 2013, the year before the ban came into force. A full 65% of this came from Indonesia, with Australia, its second-largest supplier, delivering a mere 20%.
By 2016, China’s largest bauxite suppliers were Australia and Guinea, with a marginal amount coming from places such as Brazil and the Philippines.
The shift in source markets has led to the development of new trade routes.
Panamax bulkers have been dominant in the Australia to China bauxite trade, while the long-distance trade between the West African nation of Guinea and China has seen post-panamax and even capesize bulkers being the preferred vehicle.
“China has invested a lot in bauxite mines in Guinea, but it is a bit messy. The lack of port facilities requires vessels to tranship cargoes offshore from barges. I think the Chinese will be happy to go back to Indonesia with supramaxes,” Ralph Leszczynski, Banchero Costa’s head of research in Singapore, told TradeWinds this week.
Leszczynski was also confident that China would be keen to resume importing nickel ore from Indonesia.
“The Chinese had to start importing refined nickel from Russia to make up for the Indonesian shortfall. It costs a lot more and has left the smelters in China sitting idle,” he said.
Switching from Indonesian nickel ore to refined nickel from Russia removed a large amount of cargo out of dry bulk, as the volume of material dropped significantly, with much of it shipped by rail or container.
“The content of nickel in nickel ore is very low. Once you start importing refined nickel your volumes go down from millions to thousands of tonnes,” Leszczynski said.
While the supramax sector is set to benefit from the resumption of Indonesian exports, industry consensus is that overall it will be negative for dry bulk.
In a report issued by Oslo’s Arctic Securities last Friday, analysts Erik Nikolai Stavseth and Andreas Wikborg said that reopening the trade from Indonesia to China will diminish the tonne-mile growth for these commodities, which shot up as China sourced more distant volumes.
“Indonesia exported some 64 million tonnes of nickel ore and 57 million tonnes of bauxite in 2013 — so while the removal will shorten distances it will also likely add to global seaborne supply which tempers the overall impact even if only 50% of volumes return,” they said.
Whether Indonesia will be able to re-establish pre-ban volumes remains to be seen as the reversal comes with hefty restrictions and conditions, while export duties of up to 7.5% will still apply.
