Aluminum Rebounds as Traders Brace for More Middle East Outages

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(Bloomberg) — Aluminum recovered after a two-day slide, as uncertainty over the duration of the Iran war fueled worries about further potential output cuts at major plants across the Middle East.

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The near-total closure of the Strait of Hormuz is stopping smelters from shipping out metal and bringing in raw materials. Several firms have already reduced output, and the risk of more halts will grow if the war continues, analysts warned.

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Producers in the region could cut as much as another half a million tons of annualized output if the strait remains blocked for another one to two weeks, Chinese researcher Mysteel wrote in a note. Aluminum rose as much as 0.9% on the London Metal Exchange.

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“The current aluminum price still significantly underestimates the impact of supply reductions and cost increases on the aluminum industry,” Mysteel said. Previous price expectations based on a quick resolution of the conflict aren’t valid, it said.

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Iran stepped up attacks on energy infrastructure across the Persian Gulf, forcing the suspension of a major gas field in the United Arab Emirates. That came after US President Donald Trump — who wants to delay a summit with Chinese President Xi Jinping because of the war — threatened to expand US strikes on Iran’s key export hub on Kharg Island.

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Growth Risks

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Aluminum spiked to a four-year high last week amid disruptions in a region that accounts for 9% of global production, although prices have wavered along with other metals as traders also reckon with the potential risks to global growth as energy prices rocket.

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The metal was up 0.4% to $3,408 a ton by 11:10 a.m. Shanghai time. Copper rose 0.2% and zinc gained 0.1%.

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“If the war drags on for another two weeks or a month, there will be a completely different pictures on production cuts at Middle East smelters,” said Harry Jiang, a trader with China-Base Ningbo Group Co. “There will be concentrated cuts.”

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But the Iran war isn’t the only disruption roiling the global aluminum supply chain. 

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Europe just lost its biggest single supplier of the metal after a smelter in Mozambique was mothballed, while the government of Guinea — the world’s top bauxite producer — is mulling ways to restrict exports of the raw material as soon as this year. Guinea’s plan sent alumina surging 4.8% on the Shanghai Futures Exchange to hit its highest in nearly seven months.

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