Key Takeaways:
Three-month aluminum prices on the London Metal Exchange exceeded $3,500 a ton, heading for a monthly gain of more than 12 percent after Iranian missile strikes damaged key production facilities in the Persian Gulf, tightening an already strained global market.
"A halt at EGA’s smelter, along with Alba’s reduced operations and earlier curtailments at Qatar’s Qatalum smelter would take around 3 million tons of annual capacity offline — close to half of Middle East aluminum production," said Ewa Manthey, a commodity strategist at ING Groep NV. That marks a “sharp escalation” that would imply “deeper aluminum deficits.”
The disruption stems from strikes on plants run by Emirates Global Aluminium PJSC (EGA) and Aluminium Bahrain BSC (Alba), two of the world's largest smelters. The attacks forced an uncontrolled shutdown at EGA's 1.6 million-tonne-per-year Al-Taweelah plant, causing metal to solidify in the smelting circuits. This supply shock, which one analyst at Natixis SA suggested could flip the market from a small surplus to a 1.3 million-tonne deficit, comes as US aluminum inventories sit at just two weeks' worth of consumption, down from the usual four to six weeks.
The combination of war-related supply disruptions and steep US tariffs is creating a severe crunch for manufacturers, with the delivered price of aluminum in the US soaring 83 percent in the past year to $6,100 a metric ton. This contrasts with the European price of about $4,160.
Companies that rely on aluminum are feeling the impact of the dual pressures of tariffs and global supply shocks. At Reitnouer Trailers, a Pennsylvania-based firm that builds all-aluminum flatbeds, rising metal costs accounted for nearly all of its 9.5 percent increase in production costs last year. "Every time we pass on a price increase to our customers, the price of aluminum goes up even more,” said CEO Bud Reitnouer. The conflict has curtailed shipments from the Gulf region, which supplies about one-fifth of all imported aluminum to the United States.
While US consumers of aluminum face soaring costs, domestic producers are benefiting. Pittsburgh-based Alcoa (AA), which operates smelters in Canada, has seen its stock price climb about 35 percent since the start of the year to $71.53. The company's adjusted income from its aluminum business rose to $520 million during last year’s fourth quarter from $194 million a year earlier, as higher prices boosted margins. “The tariffs aren’t harmful any longer,” Alcoa CFO Molly Beerman told investors recently.
This article is for informational purposes only and does not constitute investment advice.
