Indonesian stainless steel market
Indonesia has been ramping up its stainless steel production strongly in recent years on the back of Chinese-dominated investments. Indonesia has a competitive advantage through its massive reserves of nickel, a key component in stainless steel. Efforts to restrict the export of un-beneficiated raw materials from Indonesia over the last decade were also a major factor in supporting project development (in 2009 already, a law was passed to mandate local beneficiation of ores; the 2014 export ban was short-lived and softened to cover only high-grade ores - but the most recent 2020 ban covers all nickel ores).
China in recent years has also cracked down heavily on polluting industrial processes like stainless steel manufacturing. The combination of these factors has led to Chinese owned firms aggressively developing capacity in Indonesia since 2017.
Afriforesight sees Indonesian stainless steel production continuing to grow on the back of low domestic ore prices (due to the export ban), as urbanisation drives demand for consumer goods, and China continues to actively discourage expansion of polluting industries at home.
Alleged price manipulation by Chinese buyers
China’s government often works to create price stability along its production value chains. If looked at as a single company, China Inc effectively uses some of its ‘divisions’ (sectors) to move costs around to ensure that the ‘correct’ price levels are maintained for different commodities. This is evident in the coal market, where China sets upper and lower thresholds for thermal coal prices. If prices rise to the point of harming power utilities or fall to hurt miners, the government will step in.
China consumes much more manganese and chrome than it produces, in fact China currently does not have a single operating chrome mine. There has long been talk that Chinese traders act as a cartel when placing purchase orders, to use their market power against suppliers, and it makes sense that China would try to exert some level of control on prices of commodities for which it cannot produce its needed volumes locally.
African governments can work to limit China’s pricing power through various channels, but most options are likely to add some level of inefficiency to markets. Representatives in the audience were promoting the options of setting export tariffs/ quotas or convincing governments to slow the roll out of new mining licences. In our opinion, the least disruptive choice may be to setup a joint trading house which would be an interim buyer of the region’s output and stand as the primary negotiator with Chinese buyers.
Chinese assets in Africa
Following on from the above point of China’s insufficient chrome and manganese resources, Chinese firms have taken to buying miners of these minerals wherever there are ample resources. Chinese companies have bought up Ghana’s Consmin, Zimbabwe’s Zimasco and holds interest in South Africa’s Dilokong Chrome Mine, allowing them cheaper access to desired minerals. In doing so, these companies also ensure continuous supply to China, while avoiding protracted contract negotiations.
To better control their assets, African countries could look to set domestic ownership rules. This option runs the risk of holding back foreign investment in the medium-term; however, as these commodities are hard to source elsewhere (especially chrome), this can still be feasible if handled carefully.
The Ghanaian government is accusing Consmin - Chinese owned since 2016 - of not declaring all the volumes mined and exported in recent years and thus withholding the government’s rightful share in the form of taxes and royalties.
According to Sulemanu Koney, CEO of the Ghana Chamber of Mines, the dispute is ongoing but Consmin is still operating, albeit at reduced production levels. Earlier last week the state owned rail utility complained that Consmin is not producing enough to maintain its mine to port haulage service, which also points to the fact that the company is under pressure and not producing at optimal levels.
We thank our attendees for joining us on the day.
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