Gulf aluminum output at 62% of prewar level, global growth stalls: IAI

Primary aluminum production by the Gulf countries in April fell to 62% of its prewar daily rate, the International Aluminium Institute, which represents the global aluminum industry, said in a May 20 statement.

Preliminary production data from the Gulf region shows its daily aluminum output fell to 10,989 metric tons in April, a 26.7% decline from 15,000 mt/day in March, and down 38% from the pre-conflict baseline of 17,800 mt/day, the IAI said.

"What we are seeing in April's numbers is probably not the floor, it is a further deterioration that brings Gulf output to levels not seen in over a decade," IAI Secretary General Jonathan Grant said in a statement. "The region's smelters cannot replenish raw material stocks through the Strait of Hormuz and are trying alternate land routes to keep operating. That equation is now catching up with production in a very direct way."

Given aluminum's role in modern industries – automotive manufacturing, aerospace, construction, packaging and electrical infrastructure – and the fact that some of the most advanced economies, including the US, Japan and the EU, rely on Gulf smelters, the situation "appears to be a slow-motion supply chain shock," Grant said.

The Gulf region accounts for 6%-8% of global primary aluminum output, but supplies 19% of EU primary aluminum imports, 20%-21% of US imports, and 28% of Japan imports. South Korea, Thailand and Turkey are also substantially exposed to the region's supply, the IAI said.

Sales volumes lag output

"Producers [in the Middle East] are effectively forced to curtail output because they cannot sell or ship normal volumes amid Strait-related disruption and limited storage capacity," said Fadwa Aouini, metals and mining analyst at Middle East North Africa-focused equity research company AlphaMena.

Aluminium Bahrain, or Alba, reported a 14% year-over-year drop in first-quarter production, while its sales volumes fell 17% over the same period. The company shut Lines 1-2-3 after the war broke out.

"The wider decline in sales versus production suggests that shipping constraints through the Strait of Hormuz became the key bottleneck," Aouini said.

Aluminum production by Saudi Arabia's Maaden over January-March declined by 4% quarter over quarter to 248,000 mt, although the company is almost unexposed to raw material imports, according to the company's May 3 statement. Shipment volumes fell 8% over the same period, pointing to logistics disruption and reduced ability to evacuate metal, Aouini said.

Neither company has provided restart signals, and AlphaMena expects Middle East aluminum production to remain constrained into the second quarter, with sales volumes likely continuing to lag production due to persistent logistics disruption.

"This is important for the global market because global aluminum supply has grown only incrementally. ... With [production in] China capped [at 45 million mt/year], the ongoing GCC curtailments materially tighten the market balance," Aouini said.

Very tight balance

Even before Middle East supply reductions became pronounced, global primary aluminum production over January-March increased only 0.75% year over year to 18.25 million mt. In January-April, that growth decelerated to 0.04%, with the tonnage at 24.17 million mt, IAI data showed.

Global output shows no material compensating increases in other regions, the IAI said. "China, which accounts for 60% of global production, has shown only a marginal rise in output. No other producing region is positioned to absorb a disruption of this scale at speed," the institute said, adding that it expects the structural supply deficit to widen.

As a result, aluminum prices and regional premiums could well stay elevated through April-June, particularly in North America and Europe, where markets remain structurally short, according to Aouini.

LME aluminum cash prices have been hovering in the $3,640-$3,760/mt range since May 11, up 10% from the same period in March.