Recently, the price of alumina, a key raw material for aluminum production, has rapidly approached historic highs. Concerns over supply disruptions from Guinea, a major mineral exporter, have spread to China, causing buyers to scramble for supplies and pushing prices higher. So far this month, alumina prices have increased by more than 20%, nearing the 2018 record of $707.75.
In the Chinese market, the main alumina futures contract price has surged to 5,003 yuan per ton, marking a record high since its listing. This contract price has risen by more than 23% in the past month, while spot alumina prices have increased by 17.7% in the same period. Meanwhile, according to the London Metal Exchange (LME) cash price last Wednesday, the alumina-to-aluminum price ratio is close to 25%, significantly higher than the 15% at the start of 2024.
Industry insiders indicate that tight alumina supply fundamentals are one of the driving factors for the strong price increase in futures and spot prices. Given that the current supply-demand conflict remains prominent, there’s potential for further spot price increases in alumina.
Throughout this year, the global alumina supply chain has faced a series of disruptions, from Australia to Jamaica. Earlier this month, Emirates Global Aluminium announced that its bauxite exports from its Guinea subsidiary have been suspended by customs, sparking panic among buyers. Statistics show that Guinea exported 126.59 million tons of bauxite in 2023, with Emirates Global Aluminium accounting for 14.15 million tons, about 11.18%.
China, as the world’s largest aluminum producer, accounts for 60% of the global production of alumina and aluminum and is heavily reliant on Guinea’s bauxite. Over the past decade, large-scale Chinese investments have boosted the West African country’s bauxite output, contributing to about 70% of China’s import needs. Following the bauxite supply disruption by Emirates Global Aluminium, alumina inventories at Chinese ports fell to their lowest levels since at least 2015.
Concurrently, alumina costs are skyrocketing while finished product prices lag, squeezing smelter profit margins. In the worst-case scenario, aluminum smelters might even need to cut production to limit losses.
The recent turmoil highlights the significant influence a handful of companies and countries have on bauxite. In 2021, a coup in Guinea led the ruling military junta to leverage the country’s mineral wealth by forcing miners to invest in local alumina plants. In June, Emirates Global Aluminium signed a preliminary agreement with Aluminium Corporation of China (Chalco) to plan the construction of an alumina refinery in Guinea.
According to a report by BMO Capital Markets analysts Colin Hamilton and George Heppel, the export ban might be a shake-up for mining companies to both increase royalties on bauxite and accelerate investment in alumina refineries in Guinea. However, these investments, while boosting Guinea’s alumina refining capacity, might also constrain bauxite supply.
