Why Is Aluminum So Expensive Right Now?

Everyone understands the link between commodity prices and geopolitics, even if they don’t know it. When things go south in Saudi Arabia, Iran, or Russia, prices at the pump go up. That’s because of the outsized role those countries play in the oil market. 

But there are other commodity markets that people only pay attention to when it affects their wallets in surprising fashion. This summer, for instance, coffee prices spiked due to climate change and poor Arabica harvests in big coffee-producing regions. West African countries have whipsawed the price of cacao, making policy changes that protect the livelihood of small farmers, which affects the price of chocolate. What you pay for your smartphone or electric car depends in part on what happens in the Democratic Republic of the Congo, which overwhelmingly dominates the global production of cobalt.

What happened this week was a huge spike in the price of aluminum, which goes into everything from cars and trucks to phones and beverage cans. The metal touched $3,000 a ton—the highest it’s been since the 2008 great financial crisis—before settling down a wee bit after a couple days. But it’s still almost 70 percent more expensive than this time last year.

Why have aluminum prices skyrocketed recently, at the (hopefully) tail end of a global pandemic?

Because of Guinea, a tiny country in West Africa. Earlier this month, a military junta ousted Guinean President Alpha Condé in a coup driven by frustration over a lack of social and economic reform during his tenure. (Ramming through a referendum to ignore term limits and extend his time in office didn’t win Condé any friends either.)

Guinea is one of the major producers of bauxite, the mineral that is the raw ingredient for the production of aluminum. With a country so dependent on mining producing a commodity the world is so reliant on, a military coup naturally introduced uncertainty into the market—and uncertainty often means volatility. Even though Guinea’s mines are making an effort to keep operations normal and production steady, prices can still rise because commodities are traded speculatively. This means traders are nervous about what could happen with this batch of colonels, or even the next government, whenever it’s formed.

Guinea’s travails have indirect effects. Any blip in the bauxite supply chain has potential to wreak havoc later on. This is especially true seeing that China, which turns much of Guinea’s rocks into shiny metal, has become a net importer of aluminum recently, so it doesn’t necessarily have the domestic back stock to keep up with industry demand.

Back up: Where does aluminum come from?

Long story short, it comes from an ore called bauxite. According to the U.S. Geological Survey, bauxite is the “only raw material used in the production of alumina on a commercial scale.” In other words, if the world wants aluminum, the world needs bauxite. The process that turns bauxite into aluminum is called smelting, and it is fairly resource as well as energy and emissions intensive. It’s a messy business.

While Australia was the world’s largest producer of bauxite last year, digging up 110 million tons, Guinea produced 82 million tons, or 22 percent of the world’s supply. For a country of just 13.6 million people, that is no small feat. More importantly, perhaps, it also has the world’s largest reserves of bauxite, with 7.4 billion tons. Guinea may not be to aluminum what the DRC is to cobalt, but it’s almost there.

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What does this mean for the prices of goods that use aluminum?

Well, it’s not good. Aluminum is everywhere these days. It’s used heavily in automobile production: Ford’s F-150 pickup, the best selling vehicle in the United States, uses loads of it, which unfortunately got pricier thanks to former U.S. President Donald Trump’s tariffs on imported aluminum. It’s in cell phones. It’s in cans. The United States uses it extensively in defense production. And the post-pandemic “greening” of the economy has led to increased aluminum demand due to its prevalence in electric car production and solar panels, as NPR’s Marketplace pointed out. 

Increased demand, combined with continued political uncertainty in Guinea, could keep aluminum prices sky high. If that happens, the prices of consumer goods will inevitably inch upward. The more volatile Guinea’s political situation is, the bigger the effect.

How long will this last? 

It depends on how long political instability in the country persists. Lately, consultations have begun to shift from military rule to a transitional government. But it could take weeks—or a whole lot longer—for a final decision to be made.

In the meantime, the leader of the coup, Col. Mamady Doumbouya, rushed to assure big mining companies he wouldn’t do anything to disrupt operations, which might take some of the froth out of the market. Bauxite is Guinea’s golden goose, so it’s not likely the new junta will do anything to jeopardize exports in the short term. But if political instability continues—or if the government decides to take a bigger bite of mining revenues, potentially even leading to closures—supply problems could creep into an already jittery market. And, if you drive, talk, or eat leftovers, that is not what you want to hear.