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

On March 4th, CITIC Securities released a research report stating that the Israel-Palestine conflict has reignited, significantly increasing risks to aluminum production capacity, shipping capabilities, and energy supply in the Middle East region. 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 supply in the aluminum industry chain are intensifying, which could lead to price increases exceeding CITIC Securities’ previous expectations. Coupled with the sustained strong medium- and long-term supply and demand fundamentals of the aluminum industry, we remain optimistic about a rising trend in aluminum prices and valuations.

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Metals | Warming Middle East Tensions May Trigger Unexpected Aluminum Price Surge

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 2021–2022 energy crisis, aluminum prices and sector gains reached up to 60%/100%. Looking ahead, rising concerns over supply in the aluminum industry chain may lead to price increases beyond our previous expectations. With the strong medium- and long-term supply and demand fundamentals of the aluminum industry intact, we continue to favor a rising trend in aluminum prices and valuations.

Key Events:

On February 28th, the situation in Iran escalated into military conflict. As of now, the situation remains rapidly changing. According to The Wall Street Journal, on March 2nd, Qatar announced that after intercepting two Iranian drones targeting its critical energy facilities, LNG production at Ras Laffan has been suspended. Additionally, oil tanker traffic through the Strait of Hormuz is nearly halted. These factors caused European LNG prices to surge by 45% to €46/MWh, approaching the 2022 Russia-Ukraine conflict peak of a 51% increase. 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/year, accounting for 2% of global capacity; electrolytic aluminum capacity will be about 6.92 million tons/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 280,000 tons and 50,000 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 supply to these countries, severely impacting their aluminum smelters.

Escalating European Energy Crisis Concerns May Catalyze Significant Domestic and International Aluminum Price Increases

According to the U.S. Energy Information Administration, over a quarter of global oil shipping passes 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 2nd, 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 the aluminum industry. According to EMBER, China’s energy import dependency is relatively low at 20%, and the country has cost advantages in energy prices. Should an energy crisis occur again, the resulting overseas cost-driven aluminum price increases would significantly boost profits for Chinese aluminum companies.

During the 2021–2022 Energy Crisis, Aluminum Prices and Sector Gains Reached 60%/100%

In 2021, the shutdown of European nuclear power plants combined with Russia reducing natural gas supplies caused electricity prices to soar, pushing some aluminum companies’ electricity costs to 3 yuan per kWh. The outbreak of the Russia-Ukraine conflict in February 2022 worsened 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 (3.2 yuan per kWh), respectively. During this period, approximately 1.47 million tons/year of electrolytic aluminum capacity in Europe was gradually 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 margins reaching as high as 7,000 yuan/ton. CITIC Aluminum Industry Index saw a maximum increase of 100%.

Reinforced Narrative of AI-Driven Power Competition and Supply Disruptions, Strengthening Consensus on Aluminum Supply Vulnerability

In mid-February, Century Aluminum announced the sale of its Hawesville smelter to digital infrastructure company TeraWulf; U.S. aluminum producers also announced plans to sell ten facilities to data center companies. The impact of AI data centers on aluminum industry substitution effects is gradually materializing. Regarding disruptions, on February 12th, South32 reaffirmed that its Mozambique aluminum plant will undergo 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 rising supply concerns could push prices higher than previously expected. Coupled with the historically high copper-aluminum ratio and valuation disparities within the sector, we remain optimistic about further increases in aluminum prices and sector valuations.

Risk Factors:

• Escalation of global trade disputes
• Over-expected new overseas electrolytic aluminum capacity
• Downstream demand growth below expectations
• Sharp rise in global energy costs
• Raw material supply disruptions at the mine level
• Lower-than-expected dividend payout ratios for Chinese aluminum companies

Investment Strategy:

The resurgence of the Israel-Palestine conflict has significantly increased risks to aluminum capacity, shipping, and energy supply in the Middle East. Future disruptions in the regional aluminum supply chain and overseas secondary energy crises should not be underestimated. Reviewing the 2021–2022 energy crisis, aluminum prices and sector gains reached up to 60%/100%. Looking ahead, rising supply concerns may lead to price increases exceeding previous expectations. With the strong medium- and long-term supply and demand fundamentals of the aluminum industry, we continue to favor a rising trend in aluminum prices and valuations.

Key Charts of the Aluminum Industry

(Article source: Daily Economic News)