Guinea Coup skyrockets aluminum prices

Everyone understands the connection between commodity prices and geopolitics, even if they don’t know it. When things go wrong in Saudi Arabia, Iran or Russia, prices at the pump go up. It is because of the disproportionate role these countries play in the oil market.

But there are other commodities markets that people only pay attention to when it surprisingly affects their portfolio. This summer, for example, coffee price due to climate change and poor Arabica harvests in major coffee growing areas. West African countries have cocoa price, making policy changes that protect the livelihoods of smallholder farmers, which affects the price of chocolate. What you pay for your smartphone or electric car depends in part on what’s going on in the Democratic Republic of the Congo, which overwhelmingly dominates the world. cobalt production.

What has happened this week is a huge spike in the price of aluminum, which goes into everything from cars and trucks to phones and beverage cans. The metal hit $ 3,000 a tonne – the highest since the great financial crisis of 2008 – before settling a little after a few days. But it’s still nearly 70 percent more expensive than this time last year.

Everyone understands the connection between commodity prices and geopolitics, even if they don’t know it. When things go wrong in Saudi Arabia, Iran or Russia, prices at the pump go up. It is because of the disproportionate role these countries play in the oil market.

But there are other commodities markets that people only pay attention to when it surprisingly affects their portfolio. This summer, for example, coffee price due to climate change and poor Arabica harvests in major coffee growing areas. West African countries have cocoa price, making policy changes that protect the livelihoods of smallholder farmers, which affects the price of chocolate. What you pay for your smartphone or electric car depends in part on what’s going on in the Democratic Republic of the Congo, which overwhelmingly dominates the world. cobalt production.

What has happened this week is a huge spike in the price of aluminum, which goes into everything from cars and trucks to phones and beverage cans. The metal touched $ 3,000 a tonne – the highest since the great financial crisis of 2008 – before settling a little after a few days. But it’s still nearly 70 percent more expensive than this time last year.


Why have aluminum prices skyrocketed recently, at the (hopefully) end of a global pandemic?

Because of Guinea, a very small country in West Africa. Earlier this month, a military junta overthrew Guinean President Alpha Condé in a cut motivated by frustration over the lack of social and economic reform during his tenure. (Closing a referendum to ignore term limits and extend his term also didn’t win any friends in Condé.)

Guinea is one of the main producers of bauxite, the mineral which is the raw material for the production of aluminum. With a country so dependent on mining producing a commodity the world is so dependent on, a military coup has naturally introduced uncertainty into the market – and uncertainty is often synonymous with volatility. Even though Guinea mines make an effort to keep normal operations and stable production, prices may rise further as commodities are traded speculatively. This means that traders are worried about what might happen with this batch of colonels, or even the next government, whenever it is formed.

Guinea’s woes have indirect effects. Any incident in the bauxite supply chain has the potential to wreak havoc later. This is all the more true as China, which transforms a large part of Guinean rocks into shiny metal, has become a net importer aluminum recently, so it does not necessarily have the national reserve stock to meet industry demand.


Backup: where does aluminum come from?

In short, it comes from a mineral called bauxite. According to United States Geological Survey, bauxite is the “only raw material used in the production of alumina on a commercial scale”. In other words, if the world wants aluminum, the world needs bauxite. The process that turns bauxite into aluminum is called smelting, and that’s enough resources as well as energy and emissions intensive. It is a complicated matter.

While Australia was the world’s largest producer of bauxite last year, with 110 million tonnes of bauxite, Guinea produced 82 million tonnes, or 22% of the world’s supply. For a country of fairness 13.6 million folks, this is no small feat. Perhaps more importantly, it also has the largest bauxite reserves in the world, at 7.4 billion tonnes. Guinea may not be to aluminum what the DRC is to cobalt, but it is almost there.


What does this mean for the prices of products that use aluminum?

Well, that’s not good. Aluminum is everywhere these days. It is widely used in automobile production: Ford’s F-150 pickup, the best-selling vehicle in the United States, uses a lot of it, which unfortunately became more expensive thanks to the tariffs of former US President Donald Trump on imported aluminum. It’s in cell phones. It’s in cans. The United States uses it extensively in defense production. And the post-pandemic “greening” of the economy has led to an increase in demand for aluminum due to its prevalence in the production of electric cars and solar panels, according to NPR’s marketplace. underline.

Increasing demand, combined with persistent political uncertainty in Guinea, could keep aluminum prices high. If this happens, the prices of consumer goods will inevitably rise. The more volatile the political situation in Guinea, the greater the effect.


How long will this last?

It depends on the duration of the political instability in the country. Recently, consultations began to move from a military regime to a transitional government. But it might take weeksor much longer — for a final decision to be made.

Meanwhile, coup leader Colonel Mamady Doumbouya was quick to assure large mining companies that he would do nothing to disrupt operations, which could remove some of the foam from the market. Bauxite is Guinea’s goose that lays golden eggs, so the new junta is unlikely to do anything to jeopardize exports in the short term. But if political instability persists – or if the government decides to cut mining revenues further, possibly even leading to shutdowns – supply problems could seep into an already turbulent market. And if you’re driving, talking, or eating leftovers, that’s not what you want to hear.

About Jamie Collins

Jamie Collins

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