Chinese imports of bauxite, the main component of aluminium, dropped dramatically last month after export restrictions by Indonesia on certain raw materials came into effect. Because Indonesia is by far the largest supplier of bauxite to China, total Chinese imports over last month dropped a dramatic 84% relative to a month earlier.
Indonesia previously announced measures to ensure that its wealth of raw materials not become plundered. The decision to restrict exports was taken in an attempt to force mining companies to build refining capacity in the country. This value added step in the production process should provide for jobs, help build expertise, provide for a more extensive industrial infrastructure, and for more revenue from the country’s natural resources.
The measure has also affected the import of nickel. For nickel, however, China can tap into an alternative supply source from Australia, marginalizing the effect of Indonesia’s measure. This alternative is, however, not available for bauxite.
China has had some months to prepare for the effectuation of Indonesia’s measures, ramping up bauxite imports over the last six months to levels 23% higher than last year. This has added to stocks, and together with the current weak demand for aluminium, has given China short-term relief. Indonesia, on the other hand, has gained little in the short term. Deferred revenues for the two raw materials over the last month as a consequence of its new policy have run up to around $250 million.