Iran war rattles the global aluminium supply chain: Andy Home

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By Andy Home The U.S.-Israeli is now in its third week and its impact on Gulf aluminium production and exports is accelerating disruption across an already fragmented physical supply chain. Two Gulf smelters are curtailing capacity, and the continued closure of the Strait of Hormuz threatens more output cuts. The Middle East accounts for around 9% of global aluminium production - a metal essential to construction, transport and renewable energy. Remove China out of the equation and that ratio rises to over 20%. Take out Russia too - the reality for U.S. and European manufacturers under sanctions over its Ukraine invasion - and it rises higher still. The impact is compounded by low inventories on the London Metal Exchange (LME), which are about to shrink a lot more as traders scramble for units. PHYSICAL SHOCKThe immediate price shock from the Gulf crisis drove LME three-month aluminium COMEX:ALI1! to a four-year high of $3,545.50 per metric ton last week. Now, the secondary shock is travelling down the physical supply chain. Japanese buyers initially baulked when global producers offered a premium of up to $250 over the LME price for second-quarter deliveries, a 28% increase on first-quarter terms. They are now snapping up a revised offer of $350 for what serves as a benchmark for other Asian buyers. The premium for duty-paid aluminium in Europe (EDPc1) has surged to $450 per ton over the LME cash price, its highest level since late 2022.And there's more pain for U.S. buyers, already reeling from the impact of 50% import duties imposed last year. The Midwest premium (AUPc1) is now trading on the CME at $2,400 per ton over the LME.RISK ASSESSMENTWhile LME traders are trying to price the risk posed by the Gulf crisis to the global aluminium market, manufacturers have no choice but to pay inflated premiums just to guarantee they have metal. Aluminium Bahrain BAHRAIN:ALBH and Qatalum, the Qatari smelter joint venture between Norsk Hydro OSL:NHY and Qatar Aluminum Manufacturing QSE:QAMC are powering down some 570,000 tons of annual production capacity between them. Export shipments have ground to a halt due to the risks to shipping of passing through the Strait of Hormuz. Emirates Global Aluminium, which is still operating at full capacity, is looking to re-route shipments via the port of Sohar in Oman, which may offer some limited mitigation. But with no sign...

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