A 7% Surge After the Iran Crisis... This Could Be the Hidden Trigger for a Price Shock [Weekend Money]

Aluminum Prices Surge After US-Iran War
Used Throughout Industrial Goods... Inflationary Pressures Mount

High-strength aluminum material of SeAH Aerospace Defense Materials is loaded.

Aluminum prices have been rising sharply since the outbreak of war between the United States and Iran. As a core metal that is so widely used in daily life it is called the "vitamin of industry," there are concerns that this could increase inflationary pressures around the world.

LS Securities has pointed out that the rise in aluminum prices could become a hidden trigger in the Iran crisis. Since the onset of the Iran crisis, aluminum prices have climbed by about 7%, surpassing the previous high recorded at the end of January. While other non-ferrous metals have weakened due to a strong US dollar and a flight from risk assets following the surge in oil prices, aluminum has shown a different trend.

The Middle East accounts for 9.2% (6.8 million tons) of the world's 74 million tons of aluminum production. Because energy costs make up 40% of total aluminum production costs, the Middle East has steadily increased its market share for years by leveraging its cost competitiveness.

Disruptions in Aluminum Transportation and Production Become Reality

On March 3, Qatalum—a joint smelter venture between Norway's Norsk Hydro and Qatar Aluminium with an annual production capacity of 650,000 tons—announced a halt to production. This was due to QatarEnergy, which was damaged by Iranian drone and missile attacks, being unable to supply gas. Aluminum production is expected to remain suspended until gas supplies resume.

Aluminium Bahrain, a state-owned enterprise in Bahrain with an annual production of 1.62 million tons, also stated that it is unable to ship aluminum due to the blockade of the Strait of Hormuz. While production continues, since all of its aluminum oxide (alumina) is imported, a prolonged blockade of the Strait of Hormuz is expected to eventually lead to production disruptions.

Emirates Global Aluminium (EGA), a state-owned company in the United Arab Emirates with an annual production of 2.7 million tons, announced that it is shipping its inventory overseas due to the suspension of shipments caused by the blockade of the Strait of Hormuz. Once inventory is depleted, supply disruptions are expected to occur as well.

In addition, issues surrounding the supply of raw materials such as alumina and bauxite are also coming to the fore. The Middle East expanded its business by importing raw materials and taking advantage of low energy costs. Given that the self-sufficiency rate for alumina is only 35-40%, if disruptions in raw material supply are prolonged, production stoppages will become unavoidable.

Surging Energy Prices Impacting the World

This is not just a problem for the Middle East. With prices for crude oil and liquefied natural gas (LNG) soaring, it is inevitable that aluminum production in Europe will contract going forward. In Kentucky, the Hawesville smelter in the United States, which has an annual production capacity of 250,000 tons, has decided to sell its site to TeraWulf Data Center due to rising electricity prices. The Mozal smelter in Mozambique is also set to close due to problems with power supply.

With electricity demand already rising for data centers, it is becoming increasingly difficult to secure power for aluminum production, and the supply-demand imbalance is expected to worsen. Hong Sungki, a researcher at LS Securities, stated, "The Iran crisis will further exacerbate aluminum supply shortages due to disruptions in supply and rising energy prices," and added, "The aluminum supply-demand situation, much like during the Ukraine war, will become a hidden trigger in the current Iran crisis."

This content was produced with the assistance of AI translation services.