The aluminium market has moved into a significant deficit following further escalation in the Middle East. What initially appeared as a disruption to shipping and logistics has now evolved into a material supply shock, with multiple Gulf smelters operating well below capacity.
Recent developments include the halt of operations at Emirates Global Aluminium’s Al Taweelah smelter, a sharp reduction in output at Aluminium Bahrain (Alba), and continued reduced operating rates at Qatalum.
While the Middle East accounts for roughly 9% of global aluminium production, it represents a much larger share of seaborne supply. As a result, disruptions in the region have a significant impact on market availability and pricing.
Disruptions have intensified significantly since our previous note. In mid-March, we estimated that around 560kt of annual capacity was affected, including roughly 300kt at Alba and 260kt at Qatalum. With Alba now operating at around 30% of capacity and Qatalum at roughly 60%, the implied affected capacity has risen to around 3Mt – nearly half of the region’s production.
Based on current operating rates, the aluminium market would be in a deficit of close to 2.9Mt if disruptions persisted through the remainder of the year. However, at elevated prices, we expect demand destruction, destocking and a partial supply response from China to offset part of the supply shock, resulting in a base case deficit of around 2Mt.