Investment bank Morgan Stanley reported that the aluminum market is showing increased signs of tightening after strikes over the weekend were said to have halted operations at major Middle Eastern smelters.
Industry consultancy Wood Mackenzie is cited as saying that strikes stopped output at Emirates Global Aluminium's Al Taweelah smelter, which has a nameplate capacity of 1.6 million tonnes per annum, and reduced utilization at Aluminium Bahrain's 1.6 million tonnes per annum smelter to 30% of capacity from about 81% previously. Morgan Stanley said those disruptions would equate to a removal of roughly 2.4 million tonnes per annum, or about 3.2% of global aluminum supply. The companies named have not publicly confirmed the reports.
Morgan Stanley added that, if the wider set of Middle Eastern disruption reports are verified, total regional curbs would reach approximately 3 million tonnes per annum, equivalent to about 4% of global supply. That larger figure would incorporate approximately 0.57 million tonnes per annum of production cuts in the region that had already been announced prior to the weekend strikes, the bank said.
Bloomberg reported that Emirates Global Aluminium was offering several alumina cargoes for shipment in the April to June window, though the company has not provided comment on that report, according to Morgan Stanley's account of market reports. The investment bank noted that unplanned shutdowns of smelter operations typically require more time to restart and recover, which could result in the affected volumes being absent for the remainder of the year or longer.
On inventories, London Metal Exchange on-warrant stockpiles were cited at about 270,000 tonnes. Morgan Stanley also noted that Chinese social and billet inventories remain elevated, offering a counterweight to some of the tighter physical supply in other regions.
Price moves have reflected the supply noise. Aluminum benchmarks are up 18% year-to-date, and regional premiums in Japan, Europe and the United States have increased by a larger margin than the LME price. Morgan Stanley also highlighted a shift in relative metals pricing: the copper-to-aluminum ratio has fallen from near 4.3 times in early February to about 3.53 times currently.
Summary
Reported weekend strikes in the Middle East have reportedly shut or curtailed output at major regional aluminum smelters, removing an estimated 2.4 million tonnes per annum - or 3.2% of global supply - according to Morgan Stanley and Wood Mackenzie. If broader reports are confirmed, that disruption could amount to roughly 3 million tonnes per annum, or 4% of supply. The market has reacted with an 18% year-to-date rise in aluminum prices and elevated regional premiums.
Key points
- Reported stoppages at Al Taweelah and Aluminium Bahrain's smelters could remove roughly 2.4 million tonnes per annum - about 3.2% of global supply.
- Wider, unverified reports would raise regional disruptions to about 3 million tonnes per annum, or 4% of supply, including previously announced cuts totaling 0.57 million tonnes per annum.
- Aluminum prices are up 18% year-to-date, with regional premiums in Japan, Europe and the US rising faster than the LME benchmark; LME on-warrant inventories sit at about 270,000 tonnes while China social and billet inventories remain elevated.
Risks and uncertainties
- The reported production halts have not been confirmed by the companies involved, creating uncertainty about the scale and duration of the supply impact - relevant to metals markets and aluminum consumers.
- Unplanned smelter shutdowns generally take longer to restart and fully recover, which could prolong the removal of volumes from supply for the remainder of the year or beyond - a risk to market balance and regional premiums.
- If supply disruptions are verified at the higher reported level, the incremental removal of roughly 3 million tonnes per annum - or 4% of global supply - would materially alter availability, but verification is pending.