Australian alumina industry group warns of global supply chokepoint

The Middle East conflict is raising some critical questions for major alumina and bauxite supplier Australia, the country's leading industry association said.

The Platts-assessed US aluminum premium reached a high of 110.95 US cents/pound, plus London Metal Exchange cash, delivered in the Midwest, on March 6. Platts is part of S&P Global Energy.

The LME aluminum 99.7% cash price also rose to $3,493.40/metric ton on March 6, the highest level since March 30, 2022, according to S&P Global Market Intelligence data.

The rising aluminum prices reflect a "tight global market," the Australian Aluminium Council said in a LinkedIn post March 6.

The Islamic Revolutionary Guard Corps announced the "closure of the Strait of Hormuz" on March 2 after joint US and Israeli strikes on Iran, saying any ship attempting to pass would be a target.

"With the Gulf region producing about 9% of global aluminum capacity, the current conflict raises important questions about the potential impact on the global industry -- and what it could mean for Australia," the AAC's post said.

"The Strait of Hormuz remains a critical chokepoint for both alumina imports and aluminum exports. For smelters in the region, a secure alumina supply will be crucial -- much of which currently comes from Australia," the AAC said.

"Alumina prices are already under pressure, and these developments may add further volatility," it added.

Australia is the world's second-largest alumina producer, accounting for over 13% of global supply, according to a report by L.E.K. Consulting released March 5 by the AAC, which commissioned it.

Australia also accounts for about 25% of global bauxite production, supplying the aluminum-bearing minerals that are refined and smelted in Australia and around the world, according to the report.

The AAC warned that "this is a rapidly evolving situation ... the full implications will become clearer in the days and weeks ahead, and it will be important for industry participants to monitor developments closely."

Citi Research analysts said in a March 4 note that "inbound raw material disruption (e.g., alumina/bauxite) can force measured/controlled reductions to protect pot integrity."

However, Citi Research's understanding is that Middle Eastern smelters can carry about three weeks of alumina inventory as a "working assumption," according to the company's note.

"A disruption of inbound flows persisting beyond this window could begin to constrain operations, although smelters retain the option of undertaking preventive reductions or closures to extend inventory life if feedstock interruptions start to materialize," Citi Research analysts said.

Shift from risk to disruption

Citi Research raised its LME aluminum 0-3-month point target to $3,600/mt from $3,400/mt, with a $4,000/mt "bull case if disruption deepens," the company said.

Citi Research's bear case was also adjusted to $2,900/mt to "reflect a higher cost floor and elevated geopolitical risk."

The company's analysts said the force majeure materializing at two Gulf producers marked "a clear shift from risk to realized disruption."

Norsk Hydro ASA issued a force majeure notice to customers of its joint venture Qatalum smelter in Qatar's Mesaieed Industrial City, as the facility undergoes a controlled shutdown due to a halt in its gas supply, the company said in a March 3 statement. The smelter is a 50-50 joint venture owned by Hydro and Qatar Aluminium Manufacturing Company QPSC.

Aluminium Bahrain B.S.C. (Alba) also issued a notice of force majeure to customers of its smelter in Bahrain, which has a capacity of 1.6 million mt/year, a source close to the company told Platts on March 4.

Both Qatalum and Alba becoming inactive would temporarily remove over 2.2 million mt/y of aluminum capacity.

Scale, shock impacts

Citi Research's revised outlook "reflects the scale of the shock and the difficulty of restarting smelters once curtailed," Neil Welsh, head of metals at Britannia Global Markets, said in a note March 5.

"The combination of Gulf smelter outages and shipping paralysis has created the most acute supply event since the Russia‑Ukraine disruptions," Welsh said.

"The Alba force majeure continues to reverberate across the metals complex as the market digests just how fragile supply has become through the Strait of Hormuz," Welsh added.

Alba's suspension of deliveries has pushed prices to their highest levels since 2022, according to Britannia, "as developments are assessed to identify whether any disruptions will be a multimonth event rather than a temporary logistical snag," Welsh said.