Coup In Guinea-Conakry Sets Off Alarms In The Aluminum Market

Aluminum prices have reached their highest level in ten years after the coup broke in Guinea-Conakry, the world’s second largest producer of bauxite , a rock composed mainly of aluminum minerals, which is essential in foundries that produce this metal.

Prices for this metal, which is used in beer cans, construction or car manufacturing, rose 1% to reach $ 2,776 per tonne on the London Metal Exchange, the highest level since May 2011. Shares in aluminum producers in China and Europe are also on the rise.

Aluminum has risen strongly this year, about 40% so far in 2021. These increases have come hand in hand with massive global stimulus measures that have stoked demand just as smelters in China , the largest producer , tried to control the country’s carbon emissions to reduce pollution. The bauxite that is mined from Guinea accounts for more than half of all Chinese imports, as revealed by Bloomberg .

To all of the above, the coup in Guinea-Conakry has now been added. Guinean soldiers announced Sunday that they had ousted President Alpha Condé in an apparent military coup , raising concerns about the much-needed supply of bauxite to make aluminum.

The importance of bauxite
Guinea supplies about 25% of the world’s bauxite, mainly to China and Russia. The raw material is refined to make alumina, the starting point for aluminum production.

Shares of Russian aluminum producer Rusal rose 4% in Moscow on Monday before falling back, while those of Aluminum Corporation of China advanced 5% on higher aluminum prices. In Europe, Norsk Hydro shares rose 5% in Oslo. Higher prices, si ceteris paribus, will mean higher margins for producers.

“The increased uncertainty surrounding the new political regime in one of the world’s largest bauxite producing countries may disrupt global export flows of this raw material and also increases the likelihood of renegotiation of export contracts, which can exert upward pressure on alumina and aluminum prices, “JP Morgan analysts say.

Guinea is China’s largest source of bauxite, while Rusal owns three bauxite mines in the country, which accounted for 50% of its total supplies last year. In the first seven months of this year, Guinea supplied China with 55% of its bauxite supply, according to ING analysts. China, in turn, is the world’s largest aluminum producer.

On the other hand, Australia is the largest bauxite producer. The shares of the miners of this raw material in the country have risen strongly on the Australian Stock Exchange.

“We would expect more aggressive Chinese purchases of alumina in the coming weeks to hedge the supply,” say analysts at BMO Capital Markets. Guinea also has some of the highest quality iron ores in the world, including the giant Simandou deposit, which has been the subject of a lengthy legal battle.

BMO Capital Markets believes that gold and iron ore projects in the country could be subject to renegotiation. Shares of China Hongqiao, the world’s largest aluminum producer that is part of a consortium developing part of the Simandou deposit, fell 4% in Hong Kong trading on Monday.

Rio Tinto, which controls the other half of the Simandou project, was also trading lower on Monday. However, the Anglo-Australian monera could be a huge beneficiary of any disruption in the bauxite market. It has several large mines in Australia and Brazil that produce more material than its aluminum smelters around the world consume.

“We estimate that Rio has a net production (after consuming what it needs) of bauxite of around 35 million tonnes,” say Berenberg analysts. “Of Rio’s production, 13% comes from Guinea, and the rest comes from two mines in Australia (85% of bauxite production) and from Brazil.”

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