The key raw material needed to make aluminum is tearing toward a record high as buyers race to secure supplies, following an export disruption in top-miner Guinea that has rippled through to China.
As a result, the aluminum industry in China — the world’s biggest producer of the metal used in everything from drink cans to airplane parts — is coming under strain. China relies heavily on Guinea for bauxite, and smelters are being In the worst-case scenario, aluminum smelters could need to curtail production to limit losses, tightening metal supplies and underpinning a rally in aluminum prices.
“For months, the market has been one accident or event away from a major price move,” Duncan Hobbs, head of research at metals trading house Concord Resources Ltd., said by phone. “The Guinea situation has provided the catalyst for another step-up in prices, and it sets the stage for a tighter market and a deeper deficit.”
“The export ban is likely to be somewhat of a shakedown of mining companies to both increase royalties on bauxite, and to accelerate investment in promised alumina refineries in Guinea,” BMO Capital Markets analysts Colin Hamilton and George Heppel said in an emailed note. “This growing dependence on Guinea leaves room for market shocks,” Morgan Stanley analysts led by Amy Gower said in an emailed note. “While suspensions like this are often short-lived, it highlights the thin safety buffer in the bauxite market.”