China’s drive for supply security and diversification has led Capesize vessels to Guinea, fueling a rebound in the segment’s freight rates. As Trump’s administration relentlessly pursues an economic war on China during times of great uncertainty amid geopolitical tensions, the impact of tariffs on low cost commodities like bauxite becomes increasingly significant. Accordingly, this week, we examine one aspect of how this could come about by discussing anticipated changes in bauxite tradeflows on the Capesize market.
China’s trauma on shortage. The general climate of uncertainty surrounding trade policies and market dynamics has encouraged China to focus on self-reliance and supply diversity. While this has been evident in other industries, such as the grain sector where domestic production consistently increases, it is now observed that China is following a similar path in the aluminum market which impacts alumina and bauxite. Market participants expect China's alumina imports to decline this year with this downward trend prevailing across the medium term, especially as the country has been expanding its domestic smelting capacity. Last year, China's alumina imports totaled 1.4 mln mt, a 22% y-o-y decline according to Chinese customs data. Over the first two months of 2025, imports plunged by 88%, coinciding with a 44% increase in domestic production over the same period. Furthermore, although the topic has been largely overshadowed by current geopolitical disruptions, China’s commitment to achieving carbon neutrality by 2060 has resulted in a 14% y-o-y increase in recycled aluminum production, which adds further downward pressure on the need for alumina imports. Whereas aluminum seems to be pilling up in China, alumina inventories dropped to a record low in December 2024 (around 370,000 mt), which incentivised market participants to restock and import more Bauxite. Beijing appears to have unlocked the front-loading mode meaning it consistently imports raw materials, building up inventories of alumina and aluminium to be prepared for the unexpected events and opportunities. That being said, the US imposed tariffs on Chinese metals including aluminium, whereas the EU is debating on whether to sanction Russian aluminium. As a side note, this could pave the way for aluminium exports to go the same way that China increases steel exports when domestic demand cannot absorb a surplus. In turn, this could potentially provide support for geared vessel rates.
Priority is to secure raw materials supply. To ensure and maintain alumina production, China needs to secure Bauxite supply. Guinea has recently grown to be a major Bauxite producer and exporter at a time when Indonesia has imposed a ban on bauxite exports, further reinforcing China’s need to diversify supply. Guinean production grew by 5.7% y-o-y in 2024 to reach 130 mln mt. This comes after the country extracted 123 mln mt of bauxite in 2023, representing a y-o-y increase of 19%. Simultaneously, AXSMarine data reveals that Guinea’s exports of Bauxite totalled 143.4 mln mt last year, a 15% increase compared to the previous year. Exports from the western African country were largely supported by China which accounted for about 86% of its shipments over the past two years. To give further perspective, Guinean bauxite shipments to China increased by 30% and 15% y-o-y in 2023 and 2024, respectively. More recently, customs data revealed that China cleared 14.4 mln mt of bauxite in February. Although being down by 11% m-o-m, it still marks a significant annual increase of 28%. This brings to 30.6 mln mt the level of Chinese bauxite imports in the first two months of 2025, a jump of 25% on the year. Data also reveal that Guinea accounted for 76.5% of China’s total bauxite imports during that period as volume totalled 23.4 mln mt (higher by 29% y-o-y). Meanwhile, imports from Australia declined by 4% to 5.3 mln mt during the January-February period. The reason behind this decline does not appear to stem from the supply side, as China largely offset the loss from Australia by sourcing bauxite from Guinea and smaller producers including Turkey, Ghana and Malaysia. Market participants are expecting Chinese imports of bauxite to remain high for the foreseeable future on the back of strong demand in the second quarter from new alumina capacity commissioning and as supply remains strong from Guinea and Australia. Given that Capesize represents about 60% of global bauxite trades, and China about 75-80% of global Bauxite imports, the current market condition should provide support to the Capesize segment. This is even more likely considering that the Guinea-China route (>11,000 nautical miles) is a longer haul compared to the Australia-China route (~3,400 nm).
Capesize, the big winners. Capesize freight rates have started 2025 in the doldrums, especially when compared to last year level when the market was supported by rerouting away from Red Sea. As a benchmark, the Capesize TC average – C5TC – assessed by the Baltic averaged $10,150/day in January and $ 7,936/day in February, these were down by 53% and 75% y-o-y, respectively. Nevertheless, it appears that the Capesize market has rebounded so far in March with C5TC averaging above $20,000/day by 25 March. At time of writing, C5TC is therefore averaging $20,796/ day for the month of March, 4% higher than March 2024.
The Holy Trinity of Spiking Freight: 1. Higher commodity price 2. Strong demand 3. Port congestion. Bauxite prices (basis Shandong CFR) spiked at $115/mt in January (1), more than 60% higher y-o-y, amid low alumina inventories which triggered strong bauxite demand from Chinese smelters (2). This price surge encouraged producers, particularly in Guinea, to ramp up exports, while buyers postponed shipments until after Chinese New Year in the hope of lower prices. As a result of the above and following port congestion, a significant number of Capesize vessels are now waiting at loading ports (3). According to AXSMarine daily status data, Guinean port congestion hit a record in early March, with more than 50 Capesize vessels waiting to load. This almost 10 mln dwt of tonnage represents about 3.3% of the total Capesize active fleet in deadweight terms. Furthermore, this issue combined with a timely increase in Brazilian iron ore shipments has contributed to rapid rebound in Capesize freight. Additionally, exports from Guinea at the expanse of Australia represents higher ton-mile demand for the segment which has a positive impact on freight as it further squeezes tonnage supply. With Chinese demand expected to remain strong over the next couple of months, and a strengthening reliance on Guinean bauxite, this could spillover into a wider dry bulk freight rally.
