It should come as no surprise that the military coup that rocked Guinea on September 5 also affected the commodity markets. Events in the nation contributed to the price of aluminum, which was already on the rise, reaching its highest point in ten years. Simandou, is one of the richest undeveloped iron ore resources in the world. It is also found in Guinea. When word of the coup spread, the share prices of China Hongqiao and Rio Tinto, two investors in Simandou, briefly fell.
Guinea is merely the most recent cause of the rising price of aluminum. It has risen by almost 40% so far this year, more quickly than any other actively traded commodity (see chart). Growing demand is one factor driving the rally. The demand for aluminum for the building has increased as countries have recovered from the severe COVID-induced downturns of 2020; promises to invest lavishly in infrastructure in America, China, and Europe should further support that demand. Additionally, the demand for aluminum has increased due to the increased sales of electric vehicles, which often include a bit more aluminum than regular cars.
But supply limitations have been more significant. A sizable refinery in Jamaica was shut down in August due to a fire. At a Canadian smelter, workers are on strike, and Rio Tinto is working to end it. China is the source of other disturbances. Energy is used extensively in the production of aluminum. Some provincial governments, such as those in Inner Mongolia and Xinjiang. This has reduced production as a result of new energy consumption objectives. Meanwhile, Yunnan’s hydropower supply has been impacted by drought. According to Gregory Shearer of the bank JPMorgan Chase, these factors taken together might reduce China’s annualized aluminum production by around 5%.
Aluminum prices falling down
On Thursday, aluminum prices fell to their lowest levels in 16 months, along with other base metals, on the London Metals Exchange, as further gloomy manufacturing and real estate data from China increased concerns about weakening demand. Reuters reports that benchmark aluminum futures on the LME recently traded down 2.3% to $2,305 per metric ton and down 6.8% to a 19-month low of $21,240 per ton; zinc, copper, nickel, and lead are also lower.
According to a private survey, China’s factory activity decreased in August. And the prices of new homes fell in roughly 70 Chinese cities. This is the greatest number since the COVID-19 pandemic began. Concerns about the economy of the top consumer of metals in the world are almost made worse. This is to a fresh lockdown of Chengdu, a Chinese metropolis. Market volatility may also be caused by the European Central Bank’s anticipated interest rate increase next week. According to Ole Hansen of Saxo Bank, investors were selling part of their bullish holdings. Specifically in the energy-intensive commodities zinc and aluminum. According to Valuentum in a recent analysis posted on Seeking Alpha. Alcoa (AA) shares have had an excellent run but are currently fairly valued.
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