The inexorable potential for rise in dry bulk exports from Africa

Writing in a personal capacity, Captain. Pappu Sastry from Arise Shipping & Logistics gives readers insights into the fast changing dry bulk scene in Africa.

Africa, with more than 50 countries, is as diverse as Asia when it comes to cultures, ideologies, and colonial history. Yet many try to encapsulate Africa as one entity when it comes to natural resources and compare it with a relatively homogeneous continent like Australia. Broadly for the sake of this discussion we can consider five main areas or ranges of Africa – Northern Africa from Suez Canal to Dakar, Western Africa from Dakar to Windhoek, Southern Africa from Windhoek to Durban and Eastern African from Durban to Suez Canal. It is important to acknowledge the majority of the land locked Africa as Central Africa. The aspects to be discussed are formulated into a framework to understand the potential of Africa.

Africa debuts as a potential for new dry bulk export movements

The general perception of Africa has not changed much in the last few decades. Recently in the last decade however, Africa is slowly but surely progressing towards becoming a much larger dry bulk commodity export volumes force to reckon with. A lot of non-African businesses who are in Africa consider the potential of some of the African countries now as much greater than that of China during its growth era. The average movement of all the countries will not be a fair estimate of the progress individual countries have made. The greater part of the wealth of Africa is still untapped and unreachable using present infrastructure. I will focus on sample commodities and countries with their impressive growth stories specifically related to exports of raw materials in large quantities in bulk. This is primarily to address the dry bulk logistics, port management and shipping industries and the potential each of it has for growth in Africa. It is the niche players, innovative logistics players, and adventurous mining companies who will succeed in Africa.

Commodities that make the news

Iron ore

The largest untapped reserves of high-grade iron ore in the world are in the Western Africa belt that covers Guinea (Conakry), Sierra Leone and Liberia. In 2014, Sierra Leone was one of the largest exporters of iron ore to China. After a stop in production during the Ebola pandemic and iron ore price downturn, Sierra Leone re-started exporting iron ore from 2020 with most shipments using Capesize vessels. Liberia has been exporting since 2012 without significant stoppages but on a much smaller scale, using more sustainable methods. The price elasticity of iron ore from Africa is unable to match competition from exports from Australia and Brazil, this is mainly due to loading of upfront costs for infrastructure financing and logistics establishment.

Coal

Southern African countries have been traditionally exporting the high value coal mainly from Richards Bay; major markets have primarily been India and Europe. Mozambique had a mining boom during the last decade with players such as Vale and Jindal exporting coal from Beira and Nucala ports. High value coal from Tanzania will be the new commodity to look out for. With the recent thermal coal prices soaring and falling, and the new markets for higher (and different) quality coal emerging in Europe, there are bound to be more sources of coal production from Southern Africa and South of Central Africa.

Bauxite

Guinea Conakry has the largest world resource of good grade bauxite. Traditional players such as Rusal and Rio Tinto have been there for many years in the country but the entry of end users such as the Chinese smelters into mine owning in Guinea has tremendously increased the bauxite export volumes in recent years. In 2015 the export of bauxite from Guinea to China was standing at 300,000MT only but in 2022 the figures ran close to 85,000,000 MT. The 10-year CAGR of the Guinea exports of bauxite rank as the highest CAGR for any commodity in the minor bulk section. Even when the military coup occurred in September 2021, mining was neither affected or stopped. Bauxite exports continue to grow with many junior mines still not exporting but expected move into production soon. The freight from Western Africa is now dependent on the Guinea loading volumes and is higher generally than C3 index of Brazil – China.

Manganese

The largest export players for manganese in Africa are in Gabon, Western Africa. These mines have been working for many years but have been able to increase their production and export volumes only in the last few years, thanks to innovative logistics solutions and supportive infrastructure developments in the country. The export volumes have also graduated from regular Supramax shipments to regular Cape size shipments through such developments.

What's next

The largest potential for growth in the volume of export of dry bulk commodities suitable for bulk shipments are in the sector of bauxite and iron ore and all of that is expected from the same area in Western Africa. The Guinea – Sierra Leone – Liberia section is expected to grow in mining activity, infrastructure and port related projects, transshipment volumes and Shipping volumes in Supramax and Cape size shipments.

Since 2016, China has been importing more than 1 billion MT of iron ore every year; almost 70-75% of the world's exported or traded iron ore goes to China. During the pandemic iron ore as a commodity became a geopolitical issue for China. With the informal ban on Australia coal imports, China realized their dependence on Australia for iron ore could not be avoided. Vale issues in Brazil with iron ore production delays, further compounded the Chinese view for the need to diversify iron ore sources. Immediately you could see a large number of previously functioning or abandoned iron ore mines, which were seemingly uneconomical, were reactivated by Chinese companies. This fueled increased interest from non- Chinese / non-African investors who also joined the bandwagon.

For bauxite, Guinea (Conakry) will continue to lead the way in increasing exports. Consistently every year for the last 3 years, a fresh 20-30 million MT of Bauxite have been added to the Guinea exports and a similar trend is expected for the next decade. Winning, Chalaco and many other end user related entities are growing their mining assets and exports every year. Many new investments into the mining and infrastructure sections by non-African/ non Chinese companies have enabled fresh capital inputs into the sector. There are new bauxite mining projects due for production and export in Guinea, Sierra Leone, Liberia, Ghana, Ivory Coast, Ghana, Cameroon and many other Western African countries in small quantities. A push for benefaction by smelting or refining in on the cards for many of the countries but the power required for such activity cannot yet be guaranteed by the governments and so such push is seen as superficial and far from realization.

What's needed

The mining projects in Africa are generally not relying on mining costs but rely mainly on logistics cost, landing cost competition and speed to market. The concerned governments are only able to provide mining licenses but are unable to provide the required infrastructure for mining growth.

On land, the infrastructure required are primarily roads and railways connecting mines to a port. There are in general no public ports that these roads can lead to, and so private ports have a huge potential and deterrent at the same time. The port infrastructure is not an easy investment for even large players who would have to afford it before they can export any cargo whatsoever. The concept of road and railway and port mutualisation is not common since the investment made is probably private equity specific to a particular project and sharing it with competitors is not a beneficial idea for any mining companies. The entry barrier for mining companies in these mined commodities with need for setting up own land logistics does ensure that only credible companies with deep pockets are able to come to production. Many countries are now realizing the barrier and turning towards private investors who can facilitate the roads, railways, and ports for mining sector with a toll or mutualisation process.

At sea, the logistics required before loading on an Ocean-Going Vessel (OGV) is also extensive and expensive. With the major players who are already exporting iron ore or bauxite or manganese in large quantities, the growth in export volumes was achieved by building smaller ports in rivers and using barges to transport the commodity to anchorage where the commodity is loaded onto Cape size vessels.

Further growth in volumes in the near future are also expected at a good pace; thanks to the transshipment model used for rapidly increasing exports without waiting for port infrastructure. This is similar to the model of shipping adapted by Indonesia to grow to a 500 million MT export market for coal without increasing port infrastructure in a hurry.

The secret to success of mining depends on logistics in Africa, which is not for short term players. The secret to growth within mining logistics (land or sea) and/ or dry bulk shipping in Africa is always a result of close and consistent collaboration with mining companies who are genuinely looking for a good long-term partnership with serious players who know the landscape – so ‘knowing the landscape’ is a pre-requisite but intangible entry barrier!

This fueled increased interest from non- Chinese / non-African investors who also joined the bandwagon.

For bauxite, Guinea (Conakry) will continue to lead the way in increasing exports. Consistently every year for the last 3 years, a fresh 20-30 million MT of Bauxite have been added to the Guinea exports and a similar trend is expected for the next decade. Winning, Chalaco and many other end user related entities are growing their mining assets and exports every year. Many new investments into the mining and infrastructure sections by non-African/ non Chinese companies have enabled fresh capital inputs into the sector. There are new bauxite mining projects due for production and export in Guinea, Sierra Leone, Liberia, Ghana, Ivory Coast, Ghana, Cameroon and many other Western African countries in small quantities. A push for benefaction by smelting or refining in on the cards for many of the countries but the power required for such activity cannot yet be guaranteed by the governments and so such push is seen as superficial and far from realization.