Industrial Metal Update
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Following news of a coup in Guinea, the world’s second-largest producer of raw material bauxite, aluminum prices hit their highest level in a decade on Monday.
The price of metal used in beer cans, construction and automobiles rose 1% on the London Metal Exchange to US$2,776 per ton, the highest level since May 2011. Shares of aluminum producers in China and Europe also rose.
Guinea soldier Said On Sunday, they overthrew President Alpha Conte in an apparent military coup, sparking concerns about the supply of bauxite needed to make aluminum.
Guinea supplies about 25% of the world’s bauxite, mainly to China and Russia. Refining raw materials into alumina is the starting point for aluminum production.
Russian aluminum producer Rusal’s shares rose 4% in Moscow on Monday and then fell, while Chalco’s shares rose 5% due to the rise in aluminum prices. In Europe, Norsk Hydro’s share price rose 5% in Oslo.
JPMorgan Chase analysts said: “The increased uncertainty of the new political system in one of the world’s largest bauxite producers may disrupt global commodity export flows and increase the possibility of renegotiation of export contracts. Putting upward pressure on alumina and aluminum prices.”
Guinea is China’s largest source of bauxite, and Rusal owns three bauxite mines in the country, accounting for 50% of its total supply last year.
According to ING analysts, in the first seven months of this year, Guinea supplied 55% of its bauxite supply to China. In turn, China is the world’s largest aluminum producer.
Australia is the largest bauxite producer. The country’s mining company shares rose on Monday, and Alumina Ltd rose 3% on the Australian Stock Exchange.
An analyst at BMO Capital Markets said: “We expect China to buy alumina more actively in the coming weeks as a supply hedge.”
Guinea also has some of the highest grade iron ore in the world, including the giant Simandou deposit in a protracted legal dispute.
BMO Capital Markets said that the country’s gold and iron ore projects may need to be renegotiated.
The share price of China Hongqiao, the world’s largest aluminum producer, fell 4% in Hong Kong trading on Monday, and the company is part of a consortium that is developing the Simandou deposit.