Aluminum is used in everything from cars and trucks to phones and beverage cans. The price touched US$3,000 per ton, the highest level since the global financial crisis in 2008, and dropped slightly after a few days. But it is still nearly 70% more expensive than this time last year.
Why are prices soaring?
Because Guinea, a small country in West Africa, earlier this month, frustrated by the lack of social and economic reforms during his tenure, the military government overthrew Guinean President Alfa Conte in a coup.
Guinea is one of the main producers of bauxite, which is the raw material for the production of aluminum. Because this country is so dependent on the mining industry to produce commodities that the world relies on, military coups will naturally bring uncertainty to the market, and uncertainty usually means volatility. Although Guinea’s mines are working hard to maintain normal operations and stable production, prices may still rise because the commodities are speculative transactions. This means that traders worry about when the next government will be formed and what will happen. The suffering in Guinea has an indirect impact, and any problems in the bauxite supply chain may have serious consequences in the future.
Where does aluminum come from?
It comes from an ore called bauxite. According to the United States Geological Survey, bauxite is the only raw material used to produce alumina on a commercial scale. In other words, if the world needs aluminum, the world needs bauxite.
Australia was the world’s largest bauxite producer last year, mined 110 million tons, while Guinea produced 82 million tons, accounting for 22% of the world’s supply. For a country with a population of only 13.6 million, this is not a trivial matter. More importantly, it also has the world’s largest bauxite reserves of 7.4 billion tons.
What does this mean for the price of products that use aluminum?
Nowadays, aluminum is everywhere, and it is widely used in automobile production: Ford’s F-150 pickup is the best-selling car in the United States, and it uses it in large quantities. Unfortunately, because former US President Donald Trump imposed tariffs on imported aluminum, It becomes more expensive. It’s in mobile phones, it’s in cans, and it’s widely used in defense production in the United States. As pointed out by NPR’s Marketplace, due to the popularity of aluminum in electric vehicle production and solar panels, the “greening” of the economy after the pandemic has led to an increase in aluminum demand.
Increased demand, coupled with the continuing political uncertainty in Guinea, may keep aluminum prices high. If this happens, consumer product prices will inevitably rise slightly. The more turbulent the political situation in Guinea, the greater the impact.
How long will this situation last?
It depends on how long the country’s political instability lasts. Recently, negotiations have begun to shift from military rule to a transitional government, but it may take weeks or longer to make a final decision.
At the same time, the leader of the coup, Colonel Mamadi Dumbuya, assured the large mining companies that he would not take any measures to disrupt operations, which may cause some bubbles in the market to disappear.
Bauxite is the treasury of Guinea, so the new military government is unlikely to endanger exports in the short term. But if political instability persists or if the government decides to split more from mining revenue, it may even lead to a shutdown, supply problems may spread to already nervous markets.
Post time: Sep-27-2021