China's growing dependency on Guinean bauxite helps explain the oversized price reaction to events in Conakry. — Reuters
THE new year started with a bang in the Chinese alumina market.
The Shanghai Futures Exchange price for the product that sits between bauxite and metal in the primary aluminium production chain jumped 30% over the last two weeks of December, peaking at a Jan 3 high of 3,838 yuan per tonne.
The distant trigger for the supercharged rally was a Dec 18 explosion at an oil terminal in Conakry, the capital of Guinea, which is a major bauxite supplier to China’s alumina refineries.
The price panic quickly subsided as it became clear there will be no prolonged disruption to shipments from the West African country.
However, the incident highlights both the growing Chinese dependence on Guinean bauxite and an emerging new source of volatility in aluminium pricing.
China’s imports of Guinean bauxite have climbed over the past few years as the African country has emerged as a major supplier of the raw material required by the world’s alumina refineries.
China imported only 334,000 tonnes of Guinean bauxite as recently as 2015, making it a small part of an import mix dominated by shipments from Malaysia and Australia.
The tally over the first 11 months of 2023 was 91 million tonnes and the Guinean share of total bauxite imports was 70%.
This growing dependency helps explain the oversized price reaction to events in Conakry, which threatened to disrupt transport of bauxite from the country’s mines to its main shipping terminals.
It didn’t help that the Chinese aluminium raw materials market was already tight.
Supply from bauxite mines in the north of China was disrupted over the back end of 2023 because of closures for government inspections.
Several alumina refineries have also had to close or curtail operations to meet energy and emissions targets.
The combination of government controls and less domestic bauxite had already taken out more than six million tonnes of annual alumina capacity in China, according to local data provider Shanghai Metal Market. — Reuters
Andy Home writes for Reuters. The views expressed here are the writer’s own.
