The stability of aluminum supplies depends on political developments in Guinea

The stability of aluminum supplies depends on political developments in Guinea

The promises of the military council are not enough to reassure bauxite investors.

Political situation affecting world markets
The military coup in Guinea and the country’s entry into a political crisis since last September posed a new challenge added to the series of challenges facing the world, which is the impact of aluminum supplies, based on the effects of the coup that may affect Guinea’s export of bauxite, and thus the significant increase in the prices of aluminum-produced materials. From soft drink cans to smart phones and cars, a crisis that burdens the world, which needs years to come to overcome intertwined crises exacerbated by the repercussions of the pandemic.

Although bauxite mining has continued in Guinea for decades, during which the country witnessed three military coups, the military coup in Guinea that ousted President Alpha Conde, earlier last month, raised global concerns about the supply of bauxite, the component The main raw material in the aluminum industry.

According to the US Geological Survey, Guinea, a country located in West Africa, has the largest reserves in the world with about 7.4 billion tons of bauxite reserves, or about a quarter of the global total.

Similar to bauxite, Guinea is one of the most important exporters of gold, diamonds, rice, coffee and fish, while the most important commodity imports are petroleum, machinery, textiles, grains and foodstuffs.

On September 5, the army's special forces announced, through a video clip that spread on social media, the arrest of President Conde, the dissolution of the government and the suspension of the constitution.

Colonel Mamadi Domboya (coup leader), accused President Conde of personalizing politics, and not doing enough to create economic and social pathways for the population.

Domboya, a former officer in the French Foreign Legion, promised a transitional government of national unity and “a new era based on good governance and economic development,” but he did not say exactly what he was aiming for. Nor did he specify a time frame for that.

With calls for sanctions against the country's military regime mounting, reports indicate that aluminum prices were already high before the coup and are likely to rise further.

Teddy Kaberuka: Guinea's rulers can't stop the cash flow of mineral revenues

The red or gray rocks that are extracted from bauxite are smelted into aluminum oxide, and converted into aluminum, which is used to make a variety of products around the world.

The giant Russian aluminum company Rusal, which produces half of its bauxite production in Guinea, is considering evacuating its employees residing there if the situation escalates, according to the Russian newspaper, "Kommersant", which specializes in politics and business.

With the junta given six months by the ECOWAS regional bloc to return to the constitutional order, uncertainty increased about bauxite prices and its export to the world.

But the coup leader, Colonel Domboya, head of the National Development Commission, confirmed that existing contracts with international companies to export minerals would remain in force and sought to reassure Guinea's partners that activities would not stop and that pledges would be respected.

Rwanda-based economist Teddy Kaberuka says that the junta's steps to allow ports to be opened for export, despite continuing to close borders, and lifting curfews in mining areas to ensure continuity of production, are indications that the rulers were taking the issue of mineral revenues seriously.

"This is an indication that the metal trade is important to the rulers and the national economy, and that they cannot stop this cash flow," he added.

Eric Humphrey-Smith, an analyst at Varisc Maplecraft, a risk assessment firm, said miners “will be able to continue working, despite the lack of clarity on the direction of mining policy in the country and who will run the government.”

Besides bauxite, the mining sector in Guinea also includes gold and diamond mining.

More than 20 international companies mine in the country, including companies from the United States, France and Australia. The country's mining sector accounts for about 15 percent of GDP and about 80 percent of exports, according to the World Bank's Total Poverty Index.

Last year, local and foreign companies in Guinea produced 82 million tons of bauxite, surpassed only by Australia, which has the second largest reserves in the world after Vietnam and Brazil.

A previous report by the American newspaper Washington Post stated that the Guinea coup shook the world of the aluminum industry, with the possibility that consumers around the world would witness a financial shock if the flow of bauxite was cut off.

“The uncertainty in Guinea could put cost pressures on the value of any materials containing primary aluminum, which means the consumer will pay more,” Alan Clark, an Australian bauxite analyst, said.

And for reasons linked to the increased demand for it, the price of aluminum has jumped by 50 percent this year, while some investors are betting on an even higher rise for the metal used in everything from soft drink cans to iPhones.

And last Monday, the price of aluminum rose by 1.6 percent to 3 thousand and 14 dollars per ton on the London Metal Exchange, the highest level since July 2008.

Meanwhile, a British consulting firm indicated that the prices of Guinean bauxite shipments to China hit an 18-month high.

Beijing is Guinea's largest customer for bauxite and one of the contributors to Guinea's growth in bauxite production. Reports indicate that when former President Conde took office in 2010, Guinea's bauxite production represented a small part of global production of the material, but after 11 years, Guinea's share rose to 22 percent thanks to a huge deal Conde struck with China.

Although it represents a large proportion of the country's economy, the country's residents constantly express their opposition to bauxite mining projects, since most of them work in agriculture as a livelihood, and bauxite mining harms agricultural lands.

A week before the coup, it was reported that women in one of the mining towns closed a railway used to transport bauxite in protest against the project, which does not promise them the desired financial benefit.(Teddy Kaberuka: Guinea's rulers can't stop the cash flow of mineral revenues)
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