Indonesia’s ban on exports of unprocessed ores and minerals will result in reduced nickel ore trade, hurting the demand for small bulkers.
However, with bauxite trade shifting to Guinea-China from Indonesia-China, large bulk carriers will gain employment, according to shipping consultancy Drewry.
The Indonesian government has decided to bring forward to early 2020 its plan to ban exports of nickel ore. Anticipating a shortage of nickel ore from 2020, Chinese stainless steel producers will speed up their inventory build-up, which will result in strong nickel ore trade on Indonesia-China until the end of 2019. However, in the long term, the ban will be detrimental for nickel ore trade as it will be difficult for Chinese consumers to find alternate sources of nickel ore.
“For the moment, the Indonesian government has not announced any plans to bring forward a ban on bauxite exports but even if the government chooses to do so, the impact on overall trade will not be significant. It will be easy to replace Indonesia with Guinea sourced bauxite, though it will increase the average haulage length,” Drewry explained.
The Indonesian government had imposed a similar ban in 2014 before partially lifting it in 2017. In the run up to the proposed ban, Indonesia’s nickel ore exports skyrocketed and in the second half of 2013 the country exported an additional 10 million tonnes of nickel ore than in the second half of 2012. This translated into a monthly increase of more than 1.5 million tonnes. If the present ban has a similar impact, Indonesia’s exports will increase by 6-7 million tonnes over the next four months.
China accounts for more than 96% of Indonesia’s exports, and no major change in trade patterns is foreseen. As it takes about 20 days for a Handysize vessel to complete a round voyage between Indonesia and China, an increase in Indonesia’s exports before the ban will create additional demand for 30-35 more Handysizes over the next four months.
However, by 2020 with practically no nickel ore moving from Indonesia, an estimated 40 Handysize vessels will lose employment – a trend that will continue in the long term, according to Drewry.
Indonesia is the second largest exporter of nickel ore in the world, accounting for 37% of global nickel ore trade in 2018. After the ban is imposed, it will be challenging for other major exporters such as the Philippines and New Caledonia to fill the huge void created by the ban.
However, if the ban on bauxite exports is implemented it will have a major impact on tonne-mile employment. Indonesia exports most of its bauxite to China, and if Indonesia decides to ban bauxite exports from 2020, China will replace Indonesian bauxite with bauxite from Guinea.
A shift in bauxite trade away from Indonesia to Guinea will increase average haul lengths on bauxite trades as the distance between Guinea and China is more than 10,800 nautical miles compared with only 2,300 nautical miles between Indonesia and China.
“The gainers here will primarily be large bulkers, as traders prefer Capesize and Kamsarmax vessels on the Guinea-China route, as opposed to Supramaxes and Handysizes on Indonesia-China,” Drewry said.