The Persian Gulf is one of the world’s largest aluminum production hubs. The region, which hosts major smelters, currently accounts for about one-fifth of the global output of this metal outside China. In the coming years, an even stronger role was expected, driven by companies such as Bahrain’s Aluminium Bahrain and Qatar’s Qatalum.
But the war with Iran may have radically changed the scenario. The attacks on the plants – the latest being the one on the Al Taweelah smelter near Abu Dhabi, owned by Emirates Global Aluminium – and the more general situation of instability are indeed complicating the expansion plans of operators in the sector.
GOLDMAN SACHS ANALYSIS
Trina Chen of Goldman Sachs told Bloomberg that analysts expected the construction of new aluminum smelters in the Persian Gulf, where production is advantageous due to low energy prices. “But now this is in doubt, which increases the risk of a long-term rise in metal prices.”
Among metals, only iron is used more than aluminum, which is employed in virtually every sector of the real economy, from the packaging industry to smartphone manufacturing, to aircraft and vehicle construction. However, its production consumes a huge amount of energy, to the point that it is nicknamed “solid electricity”: to produce one ton of aluminum, the same electricity consumed in a year by five households in Germany is used.
According to Chen, aluminum smelters subject to a pot freeze can take six to eight months to become operational again.
THE ATTACK ON THE AL TAWEELAH SMELTER
At the end of March, Iran struck with missiles and drones the plants of two of the Middle East’s largest aluminum producers, the Emirati Emirates Global Aluminium and Bahrain’s Aluminium Bahrain.
In particular, the Al Taweelah smelter, near Abu Dhabi, was left without electricity due to the attacks, causing the metal inside the melting circuits to solidify, with serious damage to the plant. Last year Al Taweelah produced 1.6 million tons of aluminum.
The shutdown of activities at Al Taweelah and the production decline at Aluminium Bahrain and Qatalum plants could result in a capacity loss of about three million tons per year, that is almost half of the entire Middle East production. The Middle Eastern output accounts for 9 percent of the global aluminum supply.
AUTOMAKERS ARE IN PANIC
In the automotive sector, a panic buying of aluminum has already started, a rush to purchase driven by fear of running out of material. Some automakers fear their stocks could be depleted within a few months: if the war with Iran continues for much longer, the consequences on vehicle production could be serious.
An automaker interviewed by the Financial Times, who did not reveal its identity, said it is trying to use as much aluminum scrap as possible instead of primary metal. Some Japanese manufacturers, on the other hand, are reportedly considering resuming purchases from Russia, lacking alternatives.
Toyota CEO Koji Sato pointed out that Japan depends on the Middle East for aluminum supplies: 25 percent of Japan’s aluminum imports come from the Persian Gulf, compared to 14 percent for Europe.
