The most recent coup in bauxite-rich Analysts say Guinea is reverberating throughout the aluminum market, but the global production chain appears to be unaffected for the time being.
Aluminum prices, already buoyed by a gradual economic recovery, topped $2,800 per ton on Wednesday, reaching a 13-year high.
Guinea, a country of 13 million people, has the world’s largest reserves of bauxite, a reddish or grey rock that is extracted and converted into aluminum oxide, which is then smelted into aluminum.
According to the US Geological Survey (USGS), the West African country has estimated bauxite reserves of 7.4 billion tons, or roughly one-quarter of the global total. In Guinea, domestic and foreign firms produced 82 million tons of bauxite last year.
Only Australia, which has the world’s second-largest reserves, ahead of Vietnam and Brazil, surpassed them.
According to raw materials consultancy CRU, China imports roughly half of its needs from Guinea, despite having roughly seven times the reserves. Purchases have increased in recent years “due to the deterioration in quantity and quality of domestic bauxite reserves.”
According to the World Bank’s Macro Poverty Outlook, the mining sector in Guinea, which includes gold and diamonds, is critical to the national economy, accounting for approximately 15% of GDP and approximately 80% of exports. Aside from potential short-term supply disruptions, observers believe the coup will have no long-term consequences.
“Miners are likely to be able to continue operating, even though we lack clarity on the direction of the country’s mining policy and who will manage the government’s portfolio,” says Eric Humphery-Smith, Africa analyst at risk intelligence firm Verisk Maplecroft.
Lieutenant-Colonel Mamady Doumbouya, the coup leader, sought to reassure business partners and foreign investors in one of his first statements following the weekend takeover.
Guinea will “uphold all of its undertakings (and) mining agreements,” he says, and its “maritime borders will remain open for export activities.”
“The new leadership stated that bauxite production is critical to the country and that it should continue as before. If safety can be ensured, I do not anticipate significant disruptions in production and exports “Daniel Briesemann, a Commerzbank analyst, told reporters.
Nonetheless, Humphery-Smith cautioned that there is some risk, albeit “remote,” that a future Guinean government will renegotiate contracts or expropriate foreign-owned mine assets.
Despite Doumbouya’s assurances, foreign operators in Guinea are keeping a close eye on the turbulence, though they claim that their operations have been unaffected for the time being. Rusal, which produces half of its bauxite output in Guinea (7.3 million tons, according to Kommersant), said Monday that it was considering evacuating Guinea-based employees if the situation “escalated.”
Dmitri Peskov, a Kremlin spokesman, said on Tuesday that he was waiting to see if “the interests of our businessmen and firms are not affected and that their interests are guaranteed.”
AngloGold Ashanti, a South African gold company, said Monday that operations at its Siguiri mine were running “normally.”
Aluminum prices had already been rising in the run-up to the coup, rising by about 40% since January as global economic activity recovered from the Covid-19 trough. Rising electricity prices in China are also pushing up prices, causing a sag in production at a number of foundries in the country’s western Xinjiang region — aluminum smelting consumes a lot of energy.
According to CRU, Guinea’s political crisis should not have an undue impact on the production chain, as Beijing presides over healthy stocks.
“CRU currently estimates cumulative bauxite stockpiles in China to exceed 50 million tons, equivalent to approximately six months of imported bauxite consumption.”