DAMMAM: Gulf aluminum companies are maintaining normal production levels despite escalating geopolitical tensions in the region but have temporarily begun stockpiling part of their output in anticipation of export challenges and rising logistics costs.
These volumes will be released back into the market once visibility improves and conditions stabilize, Mahmoud Al-Dailami, secretary general of the Gulf Aluminium Council, told Al-Eqtisadiah.
Al-Dailami said the current challenges are not related to the operational capacity of Gulf smelters, but rather to securing supply chains for raw materials, as several producers rely on imported inputs.
He noted that tensions in key maritime corridors, particularly the Strait of Hormuz, could lead to noticeable shortages of raw materials due to navigation difficulties, in addition to higher freight rates and insurance premiums.
He pointed out that Gulf aluminum producers manufacture an average of about 17,800 metric tonnes per day, totaling roughly 6.5 million tonnes annually. This, he added, represents around 10 percent of global production of approximately 64 million tonnes.
About 3.8 million tonnes, more than 60 percent of total output, are exported annually to markets in Asia, Europe and the US, making smooth maritime trade flows critical to the sector’s performance, he said.
Aluminum prices rose slightly after US President Donald Trump indicated that the military campaign against Iran could last for weeks, increasing the risk of deeper disruptions to Middle Eastern metal exports.
Aluminum climbed as much as 1 percent before easing to trade at $3,196.50 per tonne by 10:00 a.m. Shanghai time, after gaining 1.7 percent on Monday.
Raw material inventories sufficient for months
Al-Dailami added that some Gulf smelters hold raw material inventories sufficient for the coming months, while companies operating in Saudi Arabia enjoy greater flexibility thanks to the availability of domestic inputs and adequate stockpiles that support production continuity.
He added that the Saudi companies also have the option to export via Red Sea ports, away from current tension zones.
The Middle East accounts for 9 percent of global aluminum production and nearly one-fifth of global output excluding China.
The loss of a full month of production, combined with rising energy costs in Europe, could push prices to $3,600 per tonne, according to Goldman Sachs Group. However, the bank’s base case remains for aluminum to average $3,150 per tonne in the first half of the year.
Too early to assess full impact
Al-Dailami said that if current conditions persist, the sector could face pressures, including raw material shortages and higher shipping and insurance costs.
He noted that if the current situation persists, the sector could face pressures in the form of raw material shortages and higher shipping and insurance costs, stressing that the picture remains incomplete and that assessing future performance depends on developments in the coming weeks.
He considered the current stockpiling decision a short-term risk management tool to ensure the stability of production and commercial operations.
There are already signs that the situation in Iran is shaking the aluminum sector. Emirates Global Aluminium, the UAE’s largest producer, acknowledged delays in exports and said it may draw from inventories held outside the region to meet customer demand.
Rio Tinto Group withdrew an initial second-quarter supply offer to Japanese customers, as hostilities threaten to lift regional premiums.
Other metals on the London Metal Exchange also rose in early Tuesday trading, with copper gaining 0.2 percent to $13,196 per tonne, while zinc rose 0.1 percent to $3,321 per tonne.
