CITIC Securities: Escalating Middle East Tensions May Catalyze Aluminum Prices to Rise Beyond Expectations

March 4, China Securities Journal reports that the Israel-Palestine conflict has reignited, significantly increasing risks to aluminum production capacity, shipping capabilities, and energy supply in the Middle East. Subsequent disruptions in the Middle Eastern aluminum supply chain and even overseas secondary energy crises should not be overlooked. Reviewing the energy crisis of 2021–2022, aluminum prices and sector gains reached up to 60%/100%. Looking ahead, concerns over aluminum supply may intensify, potentially driving prices higher than previously expected by China Securities. Coupled with the strong medium- and long-term supply and demand fundamentals in the aluminum industry, we remain optimistic about a rising valuation trend in the aluminum sector.

Full Text Below

Metals | Rising Middle East Tensions May Trigger Aluminum Prices to Surpass Expectations

The Israel-Palestine conflict has reignited, with significant risks to aluminum capacity, shipping, and energy supply in the Middle East. Future disruptions in the regional aluminum supply chain and even overseas secondary energy crises should not be ignored. Reviewing the 2021–22 energy crisis, aluminum prices and sector gains reached up to 60%/100%. Looking forward, rising concerns over supply disruptions could push prices beyond our previous forecasts. With the medium- and long-term supply and demand fundamentals remaining strong, we continue to favor a rising valuation trend in the aluminum sector.

Key Events:

On February 28, the situation in Iran escalated into military conflict. As of now, the situation remains rapidly changing. According to The Wall Street Journal, on March 2, Qatar announced it had intercepted two Iranian drones targeting its critical energy facilities and subsequently suspended LNG production at Ras Laffan. Additionally, oil tanker traffic through the Strait of Hormuz has nearly halted. These factors caused European LNG prices to surge by 45% to €46/MWh, approaching the 2022 spike of 51% during the Russia-Ukraine conflict. CNBC reports that after Iran announced the blockade of the Strait of Hormuz, US crude oil prices rose 8% to $73 per barrel.

Potential Disruption Risks to Middle Eastern Aluminum Production

According to ALD and SMM, by 2025, Middle Eastern alumina capacity will be approximately 4.5 million tons per year, accounting for 2% of global capacity; electrolytic aluminum capacity will be about 6.92 million tons per year, or 9% of the global total; Iran’s electrolytic aluminum output is expected to reach about 620,000 tons, or 0.8% of the global total. If energy infrastructure in the region is attacked, these capacities face risks of reduction or suspension. Additionally, according to Aladdin, if the Strait of Hormuz is blocked, aside from Saudi Arabia’s bauxite and alumina being largely self-sufficient, the UAE and Iran imported over 2.8 million tons and 500,000 tons of alumina respectively in 2023, risking raw material supply disruptions and electrolytic aluminum production cuts. Oman, Qatar, and Bahrain rely almost entirely on imported alumina, mainly from Australia and India, transported via the Indian Ocean–Strait of Hormuz–Persian Gulf route. A blockade would completely cut off alumina supplies to these countries, severely impacting their aluminum smelters.

Growing Concerns Over European Energy Crisis, Potentially Catalyzing Significant Rise in Aluminum Prices

According to the U.S. Energy Information Administration, over a quarter of global oil shipments pass through the Strait of Hormuz; about one-fifth of global liquefied natural gas trade is also transported via this route in 2024. Reuters reports that on March 2, electricity prices in Germany and France increased by 12% and 109% respectively compared to last Friday. If the blockade persists, energy prices and overseas electricity costs could continue to rise sharply, potentially triggering a secondary energy crisis. As one of the most electricity-intensive metals, changes in energy prices profoundly impact aluminum industry costs. According to EMBER, China’s energy import dependence is relatively low at 20%, and energy prices are advantageous. Should an energy crisis occur again, the resulting increase in overseas costs would significantly boost profits for Chinese aluminum producers.

During the 2021–22 Energy Crisis, Aluminum Prices and Sector Gains Reached 60%/100%

In 2021, the shutdown of European nuclear power plants combined with reduced Russian natural gas supplies caused electricity prices to soar, raising electricity costs for some aluminum companies to 3 yuan per kWh. The Russia-Ukraine conflict erupted in February 2022, worsening the energy crisis. As a result, from January 2021 to August 2022, according to EMBER and IMF, European natural gas and energy prices surged by 858% and 627% to $70/MBtu and €414/MWh (about 3.2 yuan per kWh), respectively. During this period, approximately 1.47 million tons per year of European electrolytic aluminum capacity was shut down. Driven by these factors, aluminum prices globally surged by up to 60%/89%, reaching new highs of 23,674 yuan/ton and $3,841/ton, with profit per ton reaching as high as 7,000 yuan. China Securities’ aluminum industry index increased by up to 100%.

Strengthening Narrative of AI-Driven Power Competition and Supply Disruptions, Reinforcing Aluminum Supply Chain Vulnerability

In mid-February, Century Aluminum announced the sale of its Hawesville smelter to digital infrastructure company TeraWulf; U.S. aluminum companies also announced plans to sell ten facilities to data center firms. The impact of AI data centers on aluminum demand is gradually becoming tangible. Regarding disruptions, on February 12, South 32 reaffirmed that its Mozambique aluminum plant would enter maintenance shutdown next month. We believe the Mozal project’s shutdown could be a precursor to a “Cobre Panama” moment in the aluminum industry, with market consensus increasingly recognizing the supply chain’s fragility.

Continued Optimism for Aluminum Sector Investment Opportunities

Referring to the latest external report, “Energy and Materials Industry Commodities Quarterly Outlook (26Q1)—Risk Aversion and Active Trading Drive Commodity Premiums” (February 2026), we expect the electrolytic aluminum industry to remain in a tight balance in Q1 driven by liquidity-driven price surges, entering a significant supply-demand gap in Q2. The average aluminum price in 2026 is projected at 23,500–24,000 yuan/ton. The escalation of Middle East tensions and supply concerns may continue to push prices higher than our previous forecasts. Coupled with the historically high copper-aluminum ratio and valuation disparities within the sector, we remain optimistic about further price and valuation increases.

Risk Factors:

Risks of escalating global trade disputes, unexpected overcapacity in overseas electrolytic aluminum production, weaker-than-expected downstream demand growth, sharp increases in global energy costs, supply disruptions of raw materials, and lower-than-expected dividend payout ratios for Chinese aluminum companies.

Investment Strategy:

The resurgence of the Israel-Palestine conflict has significantly heightened risks to aluminum capacity, shipping, and energy supply in the Middle East. Future disruptions in the regional aluminum supply chain and secondary energy crises should not be underestimated. Reviewing the 2021–22 energy crisis, aluminum prices and sector gains reached up to 60%/100%. Looking ahead, rising supply concerns may lead to prices exceeding previous expectations. With strong medium- and long-term supply and demand fundamentals, we continue to favor a rising valuation trend in the aluminum sector.

Key Charts in the Aluminum Industry

(Article source: Daily Economic News)