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Key takeaways:
It was not a shortage of the metal, but rather, it was stuck in the wrong place. Alumina cargoes were diverted and producers were juggling inventories while consumers bid up premiums to secure prompt units.
Aluminium was still being produced but it was becoming harder and more expensive to move.
However, that distinction is changing.
Iran’s attacks on Aluminium Bahrain and Emirates Global Aluminium’s Al Taweelah site on March 28 had pushed the disruption upstream.
The two are not marginal producers but large, export-oriented smelters embedded in the seaborne trade. Disruption to their production has an outsized impact relative to their share of global production because Gulf metal disproportionately feeds deficit regions.
Alba was already running below capacity after closing three smelting lines, which took about a fifth of its annual capacity of 1.623 million tonnes offline to manage raw material constraints tied to the disruptions in the Strait of Hormuz.
At the same time, EGA’s Al Taweelah 1.5 million-tonne-per-year site, which is a cornerstone of UAE exports, had taken “significant damage”. The market continues to await clarity on what this means, with a company spokeswoman declining to comment further as EGA assesses the situation.
It also remains unclear whether there has been damage to EGA’s alumina refinery, which is a key supplier of the raw material to the Gulf along with Saudi Arabia’s Ma’aden. EGA’s refinery is located next to the Al Taweelah smelter and alumina is transferred to storage and then into the smelter by a system of conveyor belts.
EGA says it has metal in transit and stock offshore. What matters for the market is not whether tonnes exist somewhere in the system but whether they can be replaced.
The Gulf only produces around 8-9% of global primary aluminium, but it punches well above its weight in exports. A large share of seaborne metal into Europe and Asia originates from there.
Even without the direct attacks, physical premiums in these regions had jumped.
Japanese import premiums had repriced sharply, while European duty-paid metal is creeping higher again.
Fastmarkets’ assessment for aluminium P1020A premium, in-whs dp Rotterdam was $480-510 per tonne on Friday March 27, up slightly from $480-505 per tonne a week earlier.
Physical traders are talking less about arbitrage and shifting their focus toward having metal anywhere that can actually be delivered.
The longer-term consequences are also important. Smelting is a continuous process: pots run hot, or they don’t run at all. Restarts are slow and technically difficult, often taking months to execute.
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Gulf smelters run on gas, which is in increasingly short supply in the region. Norsk Hydro’s joint venture Qatalum has already curtailed production to around 60% after gas supply to its 648,000-tonne-per-year plant was reduced.
If supply in the region tightens further, or if power reliability becomes an issue, partial or full curtailments risk turning into something more durable.
The US is also moving additional military assets into the Gulf, while Israeli strikes had already extended to Iranian industrial targets, including a steel plant, with near misses on more sensitive infrastructure.
The direction of travel seems to be towards escalation, not stabilization. For aluminium, that raises the probability of repeat disruption, whether to energy supply, logistics corridors, or production assets themselves.
For most of March, the question was how expensive aluminium would become to move but now the question is whether supply itself may start to erode.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Read more coverage on our dedicated Hotter Commodities page here.