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Middle East Conflict intensifies aluminium market disruption, threatening global supply chains and triggering four-year price peaks
As geopolitical unrest continues to grow in the Middle East, a substantial disruption will occur to the global aluminium supply over the next three years. Currently, approximately 7 million tonnes are produced annually in this critical area of the world, which represents about 9% of total world production for aluminium. This disruption to production will have significant effects on a variety of industries that utilize aluminium, including those involved with transportation, construction, and packaging.
At the Financial Times Commodities Global Summit held in Lausanne, Switzerland, Nick Snowdon, head of metals and mining research at Mercuria described the situation as being an unprecedented event. "Aluminium market supply shocks as are occurring at this moment in history will be the largest supply shock experienced by a base metal market since the start of 21st Century," he stated. His comments were in reference to what he termed an unpredictable, "black swan" event for which the industry was unable to plan.
The worsening situation between the US and Israel over Iran-related issues has heightened concerns regarding supply chains in the Middle East and has led to increased trading on the London Metal Exchange. Consequently, on April 16, aluminium reached a four-year high at $3,672 per tonne in response to ongoing anxiety surrounding continued shortages.
The minimum potential shortage of about 2 million tonnes forecasted by Mercuria at year’s end may be conservative given the restrictions on alumina supply via the Strait of Hormuz that could result in an even larger shortfall. The current inventory levels provide cause for alarm, with only 1.5 million tonnes of apparent inventory and just over 3 million tonnes globally in stocks, including non-apparent reserves.
As the conflict continues, continued disruption of alumina flows could create a dramatic shortage of aluminium by forcing more lengthy shutdowns of smelters and result in long-continued upward pressure on prices across all areas of metals & mining.
Business Honor is of the view that Middle East geopolitical tensions represent an unprecedented supply shock in base metals markets.
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