Aluminium: Guinea coup puts global aluminium supply chain at risk

Global aluminium production at risk following Guinea coup

The early September military coup in Guinea is shaking the global aluminium market. Guinea is the second largest producer of bauxite in the world, with 22% of the world’s production in 2020, behind Australia (30%), and has the largest proven reserves in the world (25%). Bauxite is the main ore used to produce aluminium. Guinea is China’s main supplier of bauxite – the world's largest producer and consumer of aluminium. Likewise, the Russian company Rusal, the second largest aluminium company in the world, has a bauxite refinery in Guinea. Therefore, the coup raises concerns about the supply of bauxite to the world.

For the time being, the takeover does not appear to affect Bauxite mining operations in Guinea. However, bauxite exports could be disrupted by the coup plotters or, less likely, targeted by international sanctions. In addition, the authorities could increase the royalties paid by mining companies and demand a renegotiation of export contracts. Furthermore, this could increase uncertainty over the country's mining sector and therefore slow down foreign investment. Finally, if bauxite production had to stop – even for a short period – it would hamper aluminium production. Therefore, Chinese companies are willing to secure their bauxite supply, to keep their aluminium production intact, while China’s total inventory of aluminium is at its lowest level. China will therefore have to turn to Australia to secure its bauxite supply chain. Despite tensions between the two states, bauxite trade is expected to remain fluid.

These rising uncertainties have led to an increase in aluminium prices. While the price of aluminium had increased by nearly 40% since the start of the year – because of the economic recovery that followed the Covid-19 crisis, led by the Chinese manufacturing sector – aluminium prices have further increased by 2% over the first days of September. This highlights a key fragility in the global supply chain of aluminium due to the high geographical concentration of bauxite extraction.

Analyst: Matthieu Depreter – m.depreter@credendo.com