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Aluminum futures prices soared to their highest in more than a decade after a coup in Guinea fueled concerns over Bauxite feedstock supplies. China gets half of it's supplies from Guinea and is already struggling with output.

China Aluminum worker

A worker at a production line of Nannan Aluminum Co Ltd in Nanning, China via China Daily

In an already volatile commodity space aluminum hit the highest prices in over ten years as a political coup in Guinea put Bauxite exports under threat, Bauxite is the raw material needed to make Aluminum. Aluminum had already climbed about 38% this year in London before the coup, as consumer demand and economic activity rebound with the return from the Coronavirus shutdown of the global economy.

Military Coup

A rogue unit of the nation's military seized power and suspended the constitution. Head of special forces, Colonel Mamady Doumbouya led the coup. While the unrest raises the possibility of disruption, so far there’s no sign that shipments or mines have been affected. Chalco, which has a bauxite project in Guinea, said all of its operations are normal and it has ample bauxite inventories at its plants in China.

Prices Soar

Prices on the London Metal Exchange rose  2% to $2,782 a ton, the highest since May 2011, before closing at $2,773. Over in China, futures jumped as much as 3.4% to the highest since 2006, before paring gains.  Iindustrial metals were mixed on the LME, with copper and zinc up and nickel, lead and tin all down.

Aluminum Prices Sept 2021

The flow on affect has been seen not just in futures prices but stocks of mining companies and aluminum producers also jumped. Aluminum supplier Norsk Hydro ASA of Norway jumped to a 13-year high in Oslo. Hong Kong-listed shares of Russia’s United Co. Rusal 486 jumped +14.45%, Aluminum Corporation of China Ltd. rose over 5%. Australian bauxite miner South32 Ltd. rose 2.1% in Sydney, which had closed before full news of the coup had taken affect.

Already tight market

The aluminum industry has been hit by Beijing’s pollution crackdown. China produces around 60% of the world’s total supply, with concerns around output prompting some of its largest smelters to pledge to ensure supply, and metal to be released from state reserves to ease tightness. The state move has meant China has become increasingly reliant on imports, a rare development that’s drained global supplies.

More trouble came on the demand side Chinese demand had been weaker than expected in 2019 and 2020 due to the coronavirus. Weakness in automobile output, property completions and power grid spending has helped fuel the power crisis, supply bottlenecks and the trade war with Australia. China’s smelting capacity build out affected by Coronavirus has put pressure on market balances already. China was the pocket of refined tightness thanks largely to strong semi’s exports. Chinese demand has recovered but it has had trouble meeting it, things just got worse very quickly.

Incidently Australia is the second biggest exporter of Bauxite to China. China has itself in quite a pickle.

China Bauxite Supplies

Aluminium product exports are very important for China and other nations such as India are gaining market share.  Other factors such as the pace that aluminium substitutes steel and copper at key end-use sectors couldalso rise to keep the aluminium market in deficit and global inventories to continue drawing.

“Australia (+1.6%) and Guinea (+6.5%) will maintain a steady supply growth, supported by a series of upcoming projects. Together, they account for eight of the 17 planned bauxite projects, tracked by GlobalData, which have the potential to commence production by 2025.” August 22 2021

Bauxite Mine Production By Country

Mining.com reported that in Australia, bauxite production growth will be supported by the restart of Metro Mining’s Bauxite Hills mine, where operations were halted due to the wet season. The mine is expected to produce about four million tonnes of bauxite in 2021.

 

 

Source: Reuters, Bloomberg, Mining

From The TradersCommunity News Desk

From The Traders Community Research Desk

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