Demand for aluminium value-added products (VAP) from Asian consumers has increased over the past two days because of rising concern of a prolonged disruption to shipping through the strait of Hormuz.
Vessel traffic in the strait of Hormuz has virtually come to a halt after the US and Israel launched attacks against Iran at the weekend. The strait of Hormuz is the only shipping route available to aluminium producers in the UAE, Bahrain, Saudi Arabia and Qatar.
Leading aluminium producers in the Gulf Co-operation Council (GCC) region — Ma'aden, Emirates Global Aluminium, Aluminium Bahrain and Qatalum — are key suppliers of VAP including billet, slab, rolling products and foundry alloys to downstream sectors across Europe, Asia-Pacific and the US. These firms' contract VAP deliveries would be at risk if the Hormuz disruption is extended.
Enquiries for VAP from South Korea, Thailand and Australia have increase because consumers are worried that ingot feedstock costs will rise further. Many buyers are bringing demand forward in case of a prolonged disruption to supplies from the GCC region, an Asian VAP producer said.
Some trading firms in Asia that typically buy aluminium VAP from the Middle East have postponed or cancelled their agreements with consumers because of expected logistical disruptions. These firms are now seeking alternative supplies, with India emerging as a preferred alternative origin due to its free-trade agreements with countries in Europe and established supply relationships with US buyers, a trader said.
A stoppage of traffic in the strait of Hormuz does not necessarily mean aluminium exports from the Gulf region will stop. Some countries can transport their products to Red Sea ports for export, but this would incur additional costs.
A major GCC aluminium producer has asked its customers to accept an additional $45–50/t charge to cover land transport costs to an alternative port, or risk their shipments being delayed to April. The new offer prices are workable, given that transport costs from other origins have also increased, some Asian market participants said. But shipping rates from the Red Sea could also rise, if the Yemen-based Houthi rebels resume their attacks on merchant shipping through the waterway, other market participants said.
