The Peak of a Long-Winded Road: Military coup in Guinea leads to highest aluminium price in 18 months
October 1, 2021
2 min read
What's going on here?
The President of aluminium-rich Guinea, Alpha Condé, was recently ousted in a military coup, leading to the highest rise in the global price of aluminium in 18 months.
What does this mean?
Prior to the election of Alpha Condé, Guinea’s natural resources were dormant, and remained the source of major political and legal conflict. After Condé’s election in 2010, Guinea became the producer of one-fifths of the world’s bauxite (think aluminium ore), attracting billions of dollars in investments from several countries, mainly Russia and China. Despite being the first democratically elected President of the country, Condé altered the constitution to enable himself to cling to power for a third term, winning in elections tainted by accusations of fraud. Such moves led the military to oust him in a coup. While it was met with celebration by the people of Guinea, the global aluminium market was fearful of the uncertainty related to the supply of aluminium ahead. Even China, with its policy of non-interference in the policy matters of other nations, condemned the coup after the rise in aluminium’s price.
What's the big picture effect?
Guinea’s coup is just the latest factor in the aluminium price rally (where a product’s price is on a steady increase). The growing demand for aluminium in cans during lockdowns, and for building new infrastructure to boost economic recovery post-lockdowns has led to a price rise. There have also been constraints on supply in China. Making aluminium requires a huge amount of electricity, and China’s energy-consumption targets (to peak carbon emissions by 2025) have led authorities to cut back on aluminium production. JP Morgan estimated that this could lower China’s annual bauxite output by 5%. This lower supply means that prices could rise until new capacity is found elsewhere.
It remains unclear whether the coup will affect Guinea’s bauxite production. Colonel Doumbouya, who led the coup, has urged mining companies to continue to operate, and has stated that ports will continue exports. While production has continued in Guinea, analysts are worried that the bauxite supply will still be disrupted due to sanctions placed on the military government by other countries, or due to taxes and audits on miners by the new regime.
While bauxite prices remain a concern for now, the future of Guinea lies in developing the country’s reserves of iron ore, specifically the Simandou deposit, said to be the world’s biggest untapped source of iron ore. This deposit was fraught in a bitter legal battle for its control until 2019. Now, multiple companies are involved in the development of the deposit. Despite this progress and some preparatory works, the coup may make matters even further uncertain. Shares in China Hongqiao and Rio Tinto (which control separate parts of the Simandou project) fell after news of the coup was announced. While Guinea’s government may not stop work on the project due to the several benefits it will bring, it may affect the companies’ interests after enacting its new “judicious mining policy” (possibly including sanctions on companies).
Report written by Roshni Suresh Babu
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