Aluminum prices hit decade high on Guinea coup

On September 7, 2021, 5:16 PM

Aluminium prices hit their highest levels in a decade on Monday, September 6, following news of a coup in Guinea, the world’s second-biggest producer of raw material bauxite.

The prices for the metal, used in beer cans, construction and cars, rose 1 per cent to hit $2,776 per tonne on the London Metal Exchange, the highest level since May 2011. Shares of aluminium producers in China and Europe also rose.

Guinean soldiers said on Sunday they had overthrown President Alpha Condé in an apparent military coup, raising concerns about the supply of bauxite needed to make aluminium.

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

Shares in Russian aluminium producer Rusal rose 4% in Moscow on Monday before edging back, while those of Aluminium Corporation of China were up 5 per cent on the back of higher aluminium prices. In Europe, shares of Norsk Hydro rose 5% in Oslo.

“The increased uncertainty around the new political regime in one of the world’s largest bauxite-producing countries may disrupt global commodity export flows and also raises the likelihood of export contracts renegotiation, which may put upside pressure on alumina and aluminium prices,” said analysts at JPMorgan.

Guinea is China’s largest source of bauxite, while Rusal owns three bauxite mines in the country, which accounted for 50 per cent 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 analysts at ING. China, in turn, is the world’s largest producer of aluminium.

Australia is the largest producer of bauxite. Shares in miners of the commodity in the country rose on Monday, with Alumina Ltd up 3% on the Australian Stock Exchange.

“We would expect more aggressive Chinese purchases of alumina over the coming weeks as a supply hedge,” said analysts at BMO Capital Markets. Guinea also has some of the world’s highest-grade iron ore, including the giant Simandou deposit that has been the subject of a protracted legal battle.

BMO Capital Markets said gold and iron ore projects in the country could be subject to renegotiation. Shares in China Hongqiao, the world’s largest aluminium producer, which 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 miner could be a big beneficiary of any disruption to the bauxite market. It has several large mines in Australia and Brazil that produce more material than is consumed by its aluminium smelters around the world.

“We calculate that Rio is net long bauxite by around 35m tonnes,” said analysts at Berenberg. “Of Rio’s production, 13 per cent comes from Guinea, with the balance coming from two mines in Australia (85% of bauxite production) and from Brazil.”

Story By Financial Times