In a sense, this is a story of aluminum, alumina and bauxite. Of late, aluminum prices have been shooting up, touching new highs at the London Metal Exchange (LME) and in other global exchanges. Much of this is because of a worldwide alumina shortage.
In the last month or so, there’s been as much as a 17% jump in alumina prices in China. The rising price, as well as the ongoing shortage, has now started to negatively impact aluminum production.
This is where bauxite comes in. Bauxite refineries produce alumina, or aluminum oxide, the primary material for making aluminum metal. Bauxite is also essential in manufacturing various industrial products, including abrasives, cement, and chemicals.
Guinea’s Export Ban Sends Shockwaves Through Alumina Markets
Part of the reason for the alumina shortage is the recent suspension of bauxite exports from Guinea by the Guinea Alumina Corporation (GAC). Guinea is the world’s largest exporter of bauxite, so the ban has narrowed the supply of this raw material, impacting global alumina availability.
According to recent LME data, there was a significant shift in aluminum futures positions in mid-October, with more than 40% open interest in December buys and 30-39% in January sales. Recently, Goldman Sachs raised its 2025 aluminum price forecast from US $2,540 to $2,700 per ton, anticipating potential demand growth in China due to recent stimulus measures.
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Is a Crisis Looming for Aluminum Prices?
According to an article at Forbes.com, a crisis is unfolding in the aluminum supply chain as alumina shortages pushed prices to new highs. This includes a record high of $645 per ton, nearly double the $330 per ton seen at the end of last year.
The report goes on to say that Chinese aluminum producers, increasingly dependent on imported raw materials, are facing severe supply pressures as short-term alumina prices surge. This strain on the first two stages of the aluminum supply chain remains primarily driven by issues in Guinea and Australia.
In Guinea, a major producer has halted shipments due to a customs dispute with local officials. Meanwhile, bauxite and alumina exports in Australia are slowing because of stricter environmental regulations and limited natural gas supplies. U.S.-based Alcoa is shutting down its oldest alumina refinery on the continent, and Rio Tinto’s refinery has declared force majeure due to the gas shortage.
These disruptions come as global aluminum demand grows, pushing production close to record levels.
When aluminum prices change, you need to consider if your buy is large enough to impact earnings. See how others report that data to their executive teams.
Supply Disruptions Continue to Affect Alumina
Since early 2024, the global alumina market has suffered ongoing supply disruptions, which continue to drive prices steadily upward. On October 14, the main alumina contract on the Shanghai Futures Exchange (SHFE) reached a record high compared to around the same time the previous month.
News agency Reuters reported that alumina prices surged to new record highs, squeezing profit margins for aluminum smelters that turn alumina into metal. Last week, the LME cash price, linked to the Platts benchmark for Australian alumina, closed Wednesday at US $633.35 per metric ton. This raised the alumina-to-aluminum price ratio to nearly 25%. At the beginning of 2024, when alumina prices were $350 per ton, this ratio was only 15%.
The China-Guinea Equation
Recent events underline China’s dependence on the West African nation of Guinea for bauxite for its alumina refineries. In the past, China’s own bauxite mining sector has been plagued by many problems, including environmental regulations. This forced domestic refineries to import a large portion of their bauxite requirements.
Once, China imported this raw material from Indonesia, but that came to a halt after the Indonesian government banned exports in 2023 to protect its mining sector. Guinea then replaced Indonesia as the main supplier to China, with reports indicating that imports between 2000 and 2023 doubled to almost 100 million tons.
This figure was already up by another 13% in the first eight months of this year. The January 2024 surge in alumina prices was mainly the result of a blast at an oil terminal in Guinea’s Conakry port.
This time, it’s due to news that the customs department had stopped a local subsidiary of Emirates Global Aluminum from exporting bauxite, heaping yet another problem on top of an already tight market. No doubt everyone will have their eyes on aluminum prices as we enter 2025.
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