Aluminum and the Guinea Conflict

Over the past week, an escalation of violence in Guinea is causing disruptions to the bauxite supply coming out of the country. With the imposition of martial law a few days ago, shipments to the main port of Guinea have been halted, giving aluminum speculators reason to take notice. If the violence continues to be an issue, the price of aluminum may soon begin to feel the effects of the current conflict in Guinea.

Guinea has the world’s largest reserves of bauxite, the essential ore in aluminum production. Combined with Australia, the two countries hold nearly 2/3 of the world’s known bauxite reserves. While Australia is a major producer, Guinea’s poor infrastructure, unstable politics, and lack of capital resources make it a fairly minor producer compared to the amount of known resources within the country. While much of Australia’s bauxite is smelted and refined into aluminum inside its own borders, Guinea currently has little infrastructure in these value added processes. Virtually all of its ore is exported before being being smelted and refined. This time lag between bauxite production and aluminum production may be the critical factor is determining when the violence in Guinea hits aluminum prices. If shipments to the port are not restarted soon, it may only be a few weeks before a supply squeeze begins to develop in the market. As each day goes by without a resolution, however, more and more speculators will enter the market, pushing prices up in anticipation of such an event.
With the supply restraints only a few days old, and Guinea being a fairly minor bauxite producer in today’s world, a quick resolution may show little effect in the aluminum marketplace. However, the political situation seems to be getting worse by the day and hope for a peaceful solution is deteriorating. Rather, many international journalists are convinced that the country is on the brink of a civil war so powerful that it could suck some of its neighboring countries in. While the aluminum market may be able to handle a short period of time without the Guinea supply, a prolonged time span without any Guinea bauxite production could have a dramatic impact on the marketplace. Investors are advised to watch the Guinea political situation carefully before changing their strategy on aluminum investments.
By The Commodity Investor