Coup Attempt in Guinea Highlights Risks to Global Bauxite Supply

Coup Attempt in Guinea Highlights Risks to Global Bauxite Supply

On September 5, a unit of military special forces under the command of Lieutenant-Colonel Mamady Doumbouya announced on national television that it had toppled Guinea’s President Alpha Conde and dissolved the country’s government and constitution. The coup was reportedly staged in response to the government’s violations of human rights, years of economic mismanagement, and widespread poverty and corruption.

Guinea, one of the world’s biggest producers of bauxite, a key material used in the production of aluminum, has faced months of political tensions after a contested election in the fall of 2020. Following the military coup, the country’s air and sea borders were closed for several days, while a nationwide nightly curfew will remain in place indefinitely. Although no immediate impacts have been reported at mining facilities across the country, the latest events underline the elevated risk of political and social unrest that have the potential to disrupt global supply chains depending on the country’s supply of bauxite and other natural resources.

Military Putsch Could De-stabilize Mining Operations in Mineral-Rich Guinea

Located on the Western coast of Africa, the Republic of Guinea borders Guinea-Bissau, Senegal, Mali, Côte d’Ivoire, Sierra Leone and Liberia. Although it remains one of the poorest countries in the world, Guinea possesses significant mineral resources, including the world’s biggest reserves of bauxite as well as rich deposits of iron ore, diamonds, and gold. Consequently, the mining sector is crucial to its economy, accounting for around 80 percent of all exports and roughly 15 percent of total GDP. 

Over the last ten years, the country has experienced notable economic growth under the leadership of President Conde due to its wealth of natural resources; however, political tensions came to a head in October 2020 after the president won a disputed third term in a controversial election. The ensuing mass protests led to hundreds of protesters being arrested and killed at least 30 others within a week of election day. Following the latest escalation on September 5, the coup was considered to have the potential to not only be a further step towards destabilizing a region that has experienced its fourth coup attempt in a year, but hamper Guinea’s vital mining sector as well. 

According to estimates by the US Geological Survey, Guinea has around 7.4 billion tons of bauxite reserves, roughly a quarter of the world’s total, at its disposal.[i] The vast majority of bauxite, a sedimentary rock, is used as a feedstock in the manufacture of alumina, which in turn is needed to produce aluminum.[ii] Aluminum, one of the most widely used nonferrous metals, is a key ingredient in the manufacturing operations in a range of industries, including aerospace and aviation, automotive, construction, consumer goods, and packaging. In total, an estimated 20 percent of all aluminum is produced using Guinean bauxite, with China accounting for more than half of the world’s total aluminum output. 

Figure 1: Example of aluminum manufacturing process. Source: Bloomberg.

Domestic and international mining operators produced up to 90 million tons of bauxite in Guinea throughout 2020, making it the second biggest supplier worldwide behind Australia, which possesses the world’s second largest bauxite reserves. Most of these goods are shipped to China and Russia, with the former importing more than half of its total supply from Guinea alone.

Figure 2: Bauxite Imports of China Jan-July 2021. Source: Bloomberg, via General Administration of Customs.

As a result of these reserves, some of the world’s biggest aluminum and bauxite producers, such as Aluminum Corporation of China Limited, the world’s second-largest alumina producer and third-largest primary aluminum producer, as well as the world’s second largest aluminum producer, United Company RUSAL, run mining operations in the country. While most operators have only reported minimal disruptions, if any, RUSAL confirmed that it remained ready to evacuate its Russian personnel if the security situation deteriorates. Other companies with assets in the country include China Hongqiao Group Ltd., Compagnie des Bauxites de Guinee (CBG), Lindian Resources Limited, TOP International Holding, Societe Miniere de Boke (SMB), and Emirates Global Aluminium.

SectorComponent
AutomotiveVehicle body structure
AutomotiveEngine radiator
AutomotiveSuspension
Automotive, AerospaceBody of electric motors
AerospaceAircraft fuselage
AerospaceSpacecraft components (e.g. control arms, wheels, steering knuckles, brake calipers)
AerospaceSpace blankets
AerospaceRadiation reflectors
TechnologyCasings for devices & components  
TechnologyHeat Sinks
EnergyWind Turbines
EnergyElectrical power lines
EnergyPower systems
EnergySolar Panels
Figure 3: Snapshot of components and products made with aluminum. Source: Everstream Analytics.

The coup took place at a particularly vulnerable moment for aluminum supply chains, and contributed to global aluminum prices soaring to their highest levels in 13 years within days. After years of oversupply, the sector has been already facing higher prices and the possibility of supply bottlenecks due to a combination of factors. Demand for aluminum recently spiked as economies around the world bounced back from restrictions implemented to curb the COVID-19 pandemic, while production output at several Chinese aluminum foundries dropped due to seasonal power crunches, and new anti-pollution measures. Lastly, prices for alumina had already been on the rise as well after two key alumina refineries in Brazil and Jamaica experienced production disruptions recently.

China’s bauxite imports are concentrated on a small number of countries, mostly Guinea, Australia and Indonesia, limiting its alternatives should shipments from Guinea be disrupted in the months to come. Indonesia, a former key supplier, still has export restrictions in place after a three-year halt of raw material shipments from 2014. Australia, on the other hand, has been engaged in a bilateral conflict with China, and although its bauxite exports have so far not become a target of the diplomatic dispute, China will be unlikely to increase its dependency on raw material from Australia amid the growing rift. As such, any long-term political and social instability in a key bauxite supplier country like Guinea could still have the potential to trigger even higher raw material prices, adding another burden on China’s already strained aluminum sector and its customers across the world. 

Uncertainty lingers as negotiations about Guinea’s political future begin

Guinea’s new military leaders have been quick to announce that mining operations will be allowed to continue uninterrupted; however, there is no guarantee that the transition period will be peaceful or that a new government will honor existing mining contracts. As such, the supply of mineral resources from Guinea will remain at risk of sudden disruptions as negotiations about the new direction of the country get underway. 

As the military begins a week-long consultation with political, religious and business representatives about the shape of a transitional government, many questions remain over whether the military will eventually relinquish power, and if a democratic transition and elections will be allowed. Furthermore, with the deposed president still having a significant number of supporters in the country, there remains a heightened risk that not all of Guinea’s regional factions will participate in the transition willingly and peacefully.

The coup could also derail long-term development plans in the country’s mining sector, most notably the plans for the development of the Simandou mining complex that contains some of the world’s largest untapped iron ore reserves. Although the project has been hampered by allegations of corruption and bureaucratic hurdles for years, supporting infrastructure for the complex had already been approved and the project had seen more forward momentum in recent years. Originally slated for a 2026 production start, these plans are expected to be pushed back further as the new authorities reshuffle Guinea’s political structures.

As uncertainty lingers, those with supply chain dependencies on natural resources from Guinea are advised to keep abreast of the latest political, economic, and social developments as the transition picks up speed, and to get in touch with key carriers and suppliers to assess business continuity plans for logistics and supply in the event of an escalation. Everstream Analytics’ Intelligence Monitoring capabilities enable supply chain managers to better understand the scope and impacts of such events and spot early warning signs before they cause significant impacts on their business. In the long-term, building up buffer stocks of critical components using bauxite and aluminium could also offer a prudent strategy to anticipate any future disruption of bauxite supply, and avoid sudden additional costs or delivery delays.

References


[i] Redaction Africanews. ”Coup puts spotlight on Guinea’s huge bauxite reserves.” Africanews, September 9, 2021. https://www.africanews.com/2021/09/09/coup-puts-spotlight-on-guinea-s-huge-bauxite-reserves/

[ii] Unknown Author. “Bauxite.” The Aluminum Association, 2021. https://www.aluminum.org/industries/production/bauxite

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