The company operates the largest single-site aluminum smelter in the world, with an annual capacity of about 1.62 million tons of metal, The Wall Street Journal article noted.
The production cuts and logistical problems had an immediate impact on the markets. The aluminum contract on the London Metal Exchange climbed to $3,340-$3,418 a ton, the highest in nearly four years.
Industry analysts estimate that about 8-9% of the world’s aluminum production comes from the Persian Gulf countries, with a significant portion of the supply passing through the Strait of Hormuz.
Traders start “hunting” for metal
Against the background of growing risks, large commodity traders began to actively withdraw metal from stock exchange warehouses. Swiss trading company Mercuria Energy Group plans to withdraw almost 100 thousand tons of aluminum from LME warehouses to fulfill contracts in Europe and the United States, Reuters reports.
According to the publication, about 40% of aluminum stocks at the exchange’s warehouses have already been marked for withdrawal, indicating a sharp increase in physical demand.
“The aluminum market was already extremely tight, and now the logistics shock is adding to the shortage,” George Shevley, portfolio manager of the natural resources fund at investment firm Ninety One, said for Reuters.
Against this backdrop, investment banks are already raising forecasts for the metal. Citigroup analysts expect aluminum prices to rise to $3,600 a ton in the coming months, and in a “bullish scenario” to $4,000, the publication says.
Goldman Sachs strategists give a similar forecast: if disruptions in the region continue for at least a month, the market may quickly face a physical shortage of metal.
Pressure on the auto industry and energy transition
Aluminum is the second most important industrial metal after steel. It is used in automotive, construction, aviation, electronics, and energy transition equipment.
Therefore, a price spike could quickly spread throughout the entire production chain, from automobile manufacturers to packaging and appliance producers.
“If the Strait of Hormuz remains unstable, aluminum could become the next commodity where geopolitics directly determines the price,” a London-based metals trader said in a commentary to Reuters.
For investors, this is already turning into a new trading trend, with shares of aluminum producers – from China Hongqiao Group to global mining giant Rio Tinto – showing gains amid expectations of prolonged shortages.
