Iran conflict threatens aluminum supply for Europe and US

Prolonged disruptions to Middle East aluminum exports from the war between the U.S. and Iran are likely to hit European and U.S. consumers hardest, given their heavy reliance on the region for supply.

The U.S. and Israel attacked Iran on Saturday in a move that could lead to a closure of the Strait of Hormuz, an important trade route disrupted by Iranian attacks on U.S. military bases.

Impact of sustained disruption ‘will be significant’

The Arabian Gulf is home to around 7 million tons of aluminum smelting capacity, accounting for around 8% of global capacity, said BNP Paribas commodities strategist David Wilson.

“The impact on the aluminum market of sustained disruption to shipments from the region will be significant for both prices and physical premiums, particularly in Europe,” he said.

About 75% of Middle Eastern aluminum production is exported, one analyst said.

Middle East aluminum exports

Europe imported around 1.3 million tons or 21% of its primary and alloyed aluminum from the Middle East and Egypt last year, according to information provider Trade Data Monitor.

U.S. imports of primary and alloyed aluminum from the Middle East amounted to nearly 22% of its total at 3.4 million tons last year, according to TDM.

Impact on prices

Prices of the metal used in the transport, construction and packaging industries on the London Metal Exchange hit one-month highs at $3,254 a metric ton on Monday.

The physical premium European buyers pay above the LME price, which aims to cover freight, taxes and handling costs, jumped to $378 a ton late last week, up $20 from the start of the week.

U.S. premiums around $1.04 a lb or $2,292 a ton are already at records due to Donald Trump’s 50% import tariffs imposed in June last year.

Aluminum production costs

Aluminum production costs are also expected to rise if energy costs keep rising.

Around one-third of aluminum smelting costs on average can be attributable to power, where prices tracking higher natural gas and oil prices because of the war in the Middle East are already climbing.

Reporting by Pratima Desai; additional reporting by Polina Devitt; editing by Jan Harvey