Shanghai-based shipowner and dry bulk operator Augustus Maritime was once the biggest player in a specialist trade that no longer exists — the export of Indonesian nickel ore to China. But Augustus Maritime founder Gary Zhang Yangao has rebuilt his business over the past four years with two complementary sides. On one is the export of nickel ore to China from fresh sources in the Philippines and New Caledonia, and on the other, the export of products from the newly opened smelters built in Indonesia.

In addition to operating business, Zhang is a shipowner within the closed Indonesian flag domestic market, with tonnage that connects the country’s mining centres to its smelters. Zhang, a former Cosco Hong Kong seafarer, worked as a dry bulk chartering broker for Arrow Shipbroking before setting up Augustus Maritime in 2009. He tells TradeWinds his company runs about 10 handysize bulkers at a time, plus 10 supramax to panamax bulkers on a mix of long and short time charters. In recent years, he has been carrying up to 15m tonnes per year of all cargoes.

In 2020, he expects to bring about 10m tonnes of nickel ore from the Philippines and New Caledonia, largely to China, and take up to 5m of Indonesian nickel and steel products to South Korea, Vietnam, India, the Mediterranean and the US, among others. Augustus Maritime’s fortunes have been tied up with Indonesia’s regulatory efforts to turn what was a purely extractive economic resource into a domestic steelmaking industry.

FOURTH TIME LUCKY

After three attempts to ban the export of nickel ore in a bid to force steelmakers to use the ore domestically, Indonesia looks to have succeeded. Augustus Maritime has been modifying its business model accordingly, Zhang said. “There used to be around 35m to 40m tonnes of nickel ore going into China from Indonesia, and we had about a third of it,” Zhang told TradeWinds. “But that is over and we have been trying to diversify since 2016. We have expanded our business to carry products including nickel pig iron [NPI] and stainless-steel coils.”

Chinese mills still need nickel ore and will get it elsewhere, and Augustus Maritime is ready to carry it. Zhang believes the Philippines can dominate the Chinese import trade with up to 800 supramax shipments a year, despite the generally lower grade of ore it has. Another sourcing option that Augustus Maritime serves, New Caledonia, offers only a fraction of that, and sets annual export quotas of up to 5m tonnes. But even with alternative sources for their ore, Chinese mills now face a challenging cost base.

“We have been preparing for this since four years ago,” Zhang said. “It was clear that Chinese plans would lose their competitive advantage. The production cost of Indonesian NPI is only about two-thirds of the cost in China.” Augustus Maritime also owns two ships through Indonesian subsidiaries that serve the new smelters, and is looking for a third vessel. “Most of the smelters are built near mining centres, but there is a need to ship ore of different grades from different areas of Indonesia for blending,” he said.

COAL DEMAND

“Also, there is a need for coal shipment within Indonesia because many of the smelters have their own power plants nearby.” Augustus Maritime’s Indonesian-flag fleet includes a 28,000-dwt handysize and a 66,000-dwt panamax, but Zhang is also scouting an 87,000-dwt post-panamax for the domestic trade. “Secondhand prices are very low now. We are still sourcing candidates for this ship, but coronavirus has slowed down our expansion,” he said.

“In the past, the best ships for the domestic trade were geared supramaxes for loading from barges at the anchorage. But as Indonesia has developed its steel industry, it has also developed better port facilities, and now larger gearless ships are more efficient to use.” Zhang expects to keep growing in line with Indonesia’s domestic demand. “There will be a lot of activity in building new infrastructure,” he said. “The capital will be moved from Jakarta to a new city to be built in East Kalimantan, and Indonesia has applied to host the Olympics in 2032.

“They are promoting foreign trade. And they will want more and more Chinese steelmakers to build steel mills in Indonesia,” Zhang said.