Theme of the Day: Strait of Hormuz risk seen as primary chokepoint for aluminium

Aluminium market observers expect the escalating conflict in the Middle East to cause supply disruptions to both aluminium and aluminium raw materials shipping to and from the region, together with short-term market volatility and a squeeze on global producer margins from higher energy and freight costs, according to S&P Global. Container shipping company Maersk, which transports aluminium among other goods and commodities, said that due to the deteriorating security situation in the Middle East, it was suspending all vessel crossings of the Strait of Hormuz -- the key Persian Gulf chokepoint -- until further notice. It has also paused Suez Canal sailings via the Bab al-Mandab Strait, which have been subject to attacks by Iran-backed Houthi militants in Yemen over recent years. It said all its Middle East-India to Mediterranean and Middle East-India to East Coast US services would now reroute around the Cape of Good Hope. An escalation in conflict in the Middle East could tighten primary aluminium supply. This would occur through two channels: reduced Iranian output and increased disruption risk for producers and logistics in the Gulf Cooperation Council, with the Strait of Hormuz viewed as the primary chokepoint, market participants said. A prolonged blockade would trap alumina imports and aluminium exports in the Middle East, inevitably causing a significant global supply deficit. Smelters are now checking how they can re-route their logistics. But the larger problem is the feedstock for alumina. So, at some point in time, there will be some production delays or a reduction in quantity. A lot of the Middle Eastern tons are bound for Europe; Asian premiums will increase once Europe sees the shortage. All major Middle Eastern smelters will be impacted. Iran's primary aluminium output is expected to total 608,000t in 2025, according to S&P Global Energy CERA data. Gulf Cooperation Council is the world's third-largest primary aluminium producing region, with a total output of 6.16Mt in 2025, accounting for 8.3% of the world's total aluminium output and 22% excluding China, according to the International Aluminium Institute. In 2025, the region exported 3.7Mt of aluminium, including unwrought metal and its derivatives, according to S&P Global Market Intelligence's Global Trade Analytics Suite, or GTAS. The Middle East primary aluminium sector remains structurally short of raw materials, with domestic alumina capacity insufficient to meet local demand, leaving the region heavily reliant on long-term imports. Smelters normally hold one to two months' worth of feedstock, but if they were unable to ship in raw materials for a prolonged period, they would be forced to lower run rates or even stop operations given their high dependency on imports of alumina and bauxite, with the latter, for example, coming from suppliers such as Australia, Guinea and Brazil The impact of reduced aluminium exports from the Middle East will likely hit Europe the hardest. Nearly 20% of Europe's imports come from that region, a share that has risen in recent years due to a shift away from Russian supplies. Some Asian countries, especially Japan and South Korea, will also feel the pinch, as they might have to obtain more material from Canada, India, or Africa, which could elevate regional premiums. While the aluminium sector is less exposed than oil, the conflict is likely to squeeze global producer margins through higher energy prices and freight costs. Also, it is unfolding against a backdrop of China's self-imposed aluminium capacity ceiling of 45Mt this year, which, with aluminium inventories across all key exchanges below their five-year averages, is a supply concern.