Recent output cuts at Alba and Qatalum underscore the aluminium market’s exposure to disruptions in the Persian Gulf. We have updated our aluminium scenarios to align with our latest oil market outlook while incorporating early signs of supply curtailments.
In our recent report, we highlighted how exposed aluminium markets are to disruptions in the Gulf and warned that an escalating conflict in the Middle East could push prices above $4,000/t under a severe disruption scenario. Even before the conflict, we were already constructive on aluminium prices, supported by China approaching its capacity ceiling, trade dislocations and the imminent shutdown of South 32’s Mozal already tightening supply.
Gulf Curtailments Deepen
has initiated a phased shutdown of reduction lines 1-3, representing around 19% of its 1.6Mt annual capacity. Meanwhile, Qatalum is currently operating at roughly 60% of capacity.
Taken together, around 560kt of annual aluminium capacity in the Gulf is now affected.
The Middle East produces roughly 6-6.5Mt of aluminium annually, meaning the current disruptions affect close to 8-9% of regional supply.
Source: Company reports, ING Research estimates
Limited Raw Material Inventories Raise Risk of Further Cuts
Aluminium smelters in the Gulf rely on continuous imports of raw materials such as alumina and typically hold around three to four weeks of inventories. This limited buffer leaves production vulnerable to shipping disruptions, particularly as alumina cannot be stored for extended periods. The region produces only around 3% of global alumina and about 1% of bauxite, leaving smelters highly dependent on seaborne supply.
With the conflict now entering its third week, a large portion of this buffer may already have been drawn down. If shipping disruptions through the Strait of Hormuz persist, additional curtailments could begin within the next one to two weeks as inventories are depleted.
Importantly, once potlines are shut, restarting them can take six to twelve months, meaning supply losses may persist even if the geopolitical situation improves.
Revised Aluminium Scenarios
To ensure consistency across our commodities outlook, we have updated our aluminium scenarios to align with our latest oil market framework.
Given curtailments at Alba and Qatalum, we have slightly tightened our aluminium market balance assumptions while leaving the broader scenario framework unchanged.
ING Research estimates
What Would Push the Market Into a Prolonged Disruption Scenario?
The probability of the prolonged disruption scenario has increased following curtailments at Alba and Qatalum.
Whether the market moves beyond our base case will largely depend on how quickly shipping disruptions through the Strait of Hormuz ease.
Under our base case scenario, shipping disruptions remain severe in March before gradually easing through the second quarter. In this case, current curtailments at Alba and Qatalum would remain relatively contained.
However, if shipping disruptions extend into April, alumina inventories at Gulf smelters could become increasingly constrained, potentially forcing further production cuts across the region.
A move towards our severe disruption scenario would likely require shipping disruptions to persist through May, forcing additional smelters to curtail output and significantly tightening global aluminium supply.
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Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more
