Aluminum Hits 13-Year High as Supply Woes Build, Demand Booms

(Bloomberg) -- Aluminum rose to the highest in 13 years after turmoil in Guinea added to an uncertain supply outlook just as global demand booms.

The metal rallied as much as 1.9% in London, and is now up more than 90% from lows struck in April last year amid a global economic recovery and a supply squeeze in China. Political unrest in Guinea has helped spur aluminum to fresh peaks on concerns about the possibility of disruptions to bauxite operations, a key material used in aluminum production.  

Even before the destabilization in the African nation, aluminum had been on a tear as production curtailments in China reshaped the outlook for supply, and premiums paid by consumers point to booming demand. Stricter environmental controls will raise costs for producers globally, and aluminum prices may need to hit record highs to boost supply significantly, according to Trafigura Group. 

Guinea supplies almost a quarter of the world's bauxite. Coup leaders have urged mining companies to keep operating and reassured them that their existing agreements with the state will be honored.

The coup “has raised concern about potential supply disruptions for bauxite and alumina,” Ed Meir, an analyst at ED&F Man Capital Markets, said in a note. “However, it is important to note that both have been rising steadily well before the coup and we attribute their strength instead to the same issues that other commodities are struggling with.” 

Those include strong demand and shipping delays, as well as Chinese efforts to limit production, Meir said.

Aluminum, which is used in everything from beer cans to airliners, had climbed about 38% this year in London before the coup, as businesses reopened from pandemic shutdowns and consumer demand and economic activity rebounded. At the same time, smelters in China have struggled to maintain output during a seasonal power crunch and as Beijing seeks to rein in the country's carbon emissions. 

Prices rose 1.3% to settle at $2,794 a ton at 5:51 p.m. on the London Metal Exchange, taking this year's gain to 41%. Shanghai aluminum reached the highest level since 2006.

Other metals were mixed in London on Wednesday, with copper falling 1.1% and nickel rising 1.1%. Concerns about demand in China's property sector have risen to the fore this week as doubts grow about developer China Evergrande Group's ability to repay its debts. 

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With assistance from Bloomberg