China's Bauxite trade with Indonesia recovers again

Indonesia's bauxite exports to China, which came under fresh government restrictions in May, have begun to recover as Jakarta resumes exports to Chinese metal producers, state-owned Chinese metal consultancy Antaike said Thursday.

The shifting trend suggests that Indonesia's efforts to develop a domestic metal-processing capacity may be running up against the sheer size and pull of Chinese consumption.

"Indonesia is still giving export quotas to Chinese alumina producers," Antaike analyst Michael Huang said. "If they don't sell [bauxite] to the Chinese, who else will they sell it to?"

Indonesia was China's top supplier of bauxite, a raw material for aluminum, until Jakarta introduced a 20% export tax on 65 unrefined mineral types in mid-May, ahead of a full ban expected in 2014.

The policy drove Chinese bauxite imports from Indonesia sharply lower to 187,355 metric tons in June after reaching a record 5.6 million tons in May, according to China customs data.

Jakarta's new export regulations are costing Indonesian miners $164 million a month in lost nickel and bauxite sales and have caused nearly 15,000 layoffs in the mining industry, the Indonesian Association of Mineral Entrepreneurs said in June.

The July mineral-export revival also comes after Indonesia posted an all-time high trade deficit in June as exports slumped.

As Indonesia found few alternatives to Chinese consumers, bauxite exports to China rose 13.4% sequentially in July to 212,511 tons.

Chinese bauxite importers are paying Indonesia's new 20% export tax on the ore, which adds 100 yuan a ton to their raw-material costs, Mr. Huang told Dow Jones Newswires. Bauxite now costs around CNY2,500-CNY2,600/ton in China, including the Indonesian tax.

Some Chinese companies have signaled they would try to assist in developing Indonesia's downstream processing industry. Earlier this month, Bosai Minerals Group Co., China's largest bauxite producer, said it would invest $1 billion to build an alumina plant in Indonesia.

However, Chinese producers may prefer paying the extra tax as falling aluminum prices exacerbate the prohibitive cost of developing full-fledged processing plants in Indonesia, which would typically also require port, rail and electricity infrastructure.

London aluminum prices are down about 23% from their peak this year, while Chinese prices have shed around 11% since the start of the year.

As Indonesian supply shrinks, China has turned to Australia and, to a lesser extent, smaller bauxite producers in Malaysia and India.