In aluminum rolling plants, we often hear that what is expensive in a can is not its contents, but the aluminum. And the price of the can of beer or Coke you drank this weekend could soon rise, as the price of aluminum ripples throughout the supply chain.
If the attention of the public and the markets is mainly focused on the price of oil while we still find ourselves in an impasse in the Strait of Hormuz, other essential raw materials are paying the price of the war waged by the United States and Israel against Iran.
Thus, the price of aluminum has jumped by around $500 per tonne since the start of the conflict to reach $3,667 [environ 3Â 200Â euros]in an already tense market, as evidenced by the 47.9% increase in the price of this material over one year. Given the growing supply deficit, analysts predict it will trade for $4,000 [3Â 454Â euros] per tonne in the third quarter and until 2027; he would thus break the record of 3,838 dollars [3Â 325Â euros] established in 2022, following the Russian invasion of Ukraine.
This new price shock is due to the interruption of aluminum exports from Gulf producers, which contributed around 9% to world supply. Two of the world’s largest smelters, which produced more than 3.2 million tonnes of aluminum, were hit at the end of March by Iranian missiles and drones. Emirates Global Aluminum’s (EGA) Al-Taweelah complex in the United Arab Emirates has suffered major damage to its smelter, power plant, alumina refinery and recycling plant. It will take a year for their restoration, once the conflict is over.
Alumina imports disrupted
Aluminum Bahrain (Alba) facilities were also damaged, but the company had already reduced its production capacity by 19% in early March, citing force majeure, due to the closure of the Strait of Hormuz which disrupted both its exports and imports. of alumina, a raw material essential to its activity.
Qatalum, in Qatar, was not directly targeted, but Iranian attacks on the emirate’s natural gas installations forced the plant to gradually shut down its production in early March, due to a lack of sufficient energy supplies. The return of the plant to full operation should take a year, or even more according to some specialists, because of the damage suffered by the Ras Laffan LNG installation.
Even if the Maaden smelter, in Saudi Arabia, and that of Sohar, in Oman, are still operational, the reduction in aluminum production in the Gulf is estimated at around 2.5 million tonnes, or even 3 million. It is complicated to say how much of production is really at a standstill, with Alba remaining discreet about the exact situation in its Bahrain factory. The company officially announced the closure of three production lines, but a fourth line may have been suspended, while the remaining two would only operate at reduced capacity.
The problem is that, due to the closure of the strait, ships which usually carry 30,000 tonnes of alumina cannot dock near the Gulf facilities. They are obliged to do this in Oman or on the Red Sea coast, from where the raw material is then transported by truck to the smelters. But with around twenty tonnes transported by truck, the foundries, which need thousands of bags of alumina per day to operate, simply do not have enough raw materials.
All this results in a surge in prices, accompanied by a risk of shortage for the main export markets of the Gulf, which are seeing their stocks dwindle. About 28% of Japan’s aluminum comes from the Gulf, which also supplies 21% of U.S. aluminum imports. As for Europe, it sources 19% of its primary aluminum from member countries of the Gulf Cooperation Council (GCC) and 5% of its flat-rolled aluminum products.
There are few other choices apart from Gulf metallurgists. Of course, Russia produces some 3.5 million tonnes of aluminum, but as with natural gas and oil, it cannot constitute a replacement solution, because of multilateral sanctions and the ostracism to which Moscow is subject.
As for China, which represents around 60% of global aluminum production, it has set a capacity ceiling of 45 million tonnes per year, which is unlikely to be raised. Canada and Australia are trying to push their production to the maximum, but this is not enough to compensate for the 3 million tonnes missing from the Gulf countries.
As for new factories, like those in Kazakhstan and Ghana, they will only contribute to an increase in supply little by little. Indonesia, for its part, has six foundries at different stages of construction, but their production will not be put on the market before the end of the decade. In fact, it takes four to five years before aluminum comes out of a new foundry, from the moment we decide to build one.
To look on the bright side, the Gulf crisis has encouraged aluminum producers in the region to diversify. On June 2, Alba acquired Europe’s largest aluminum smelter, Aluminum Dunkerque, in France, for $2.2 billion [1,9 milliard d'euros]while EGA of the United Arab Emirates has strengthened its commitment to a joint venture with Century Aluminum to build a smelter in Oklahoma [aux États-Unis,] the realization of an investment of 4 billion dollars [quelque 3,5 milliards d'euros] carried out in January.
As with all the raw materials for which they depend on the Gulf, companies hope for an easing of the conflict and a reopening of the Strait of Hormuz as soon as possible. But when that happens, aluminum producers will find themselves at the end of the line, behind exporters and importers of food, fertilizers and hydrocarbons, who will have logistical priority. This rule will also apply to components necessary for the reconstruction of the EGA factory in the United Arab Emirates, which could experience significant delays.
The metal will have to be broken with a jackhammer
Unlike Qatalum, which was able to carry out a controlled shutdown of its installation, which avoided damage and will allow it to restart as soon as the conditions are right, the case of the EGA plant is much more complex. The strikes caused an uncontrolled shutdown, causing a solidification of the metal, which will have to be fractured with a jackhammer then removed before any restoration. Other projects will take even longer, for example the installation of a new cathode block at the bottom of the electrolysis cell, because its delivery time is six months.
Given these delays, global aluminum prices are not expected to fall anytime soon. Not only will this lead to an increase in the price of canned drinks, but other sectors, such as consumer electronics, will also be affected. Alba, for example, was a major supplier of high-purity aluminum for aerospace, automotive and construction, shipping to more than 290 customers worldwide.
