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 conflict between Israel and Palestine has reignited, significantly increasing the 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 previous Citic Securities 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 renewed conflict between Israel and Palestine has significantly increased risks to aluminum production capacity, shipping capabilities, and energy supply in the Middle East. Subsequent disruptions in the regional aluminum supply chain and potential 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 forward, rising concerns over supply in the aluminum industry chain may push prices higher than previously expected. With the strong medium- and long-term supply and demand fundamentals remaining intact, we continue to favor a bullish outlook for aluminum prices and valuations.

Key Events:

On February 28th, the situation in Iran escalated into active military conflict. As of now, the situation remains rapidly evolving. According to The Wall Street Journal, on March 2nd, Qatar announced it had intercepted two Iranian drones targeting its critical energy infrastructure and subsequently suspended LNG production at Ras Laffan facilities. Additionally, oil tanker traffic through the Strait of Hormuz has nearly come to a halt. 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, U.S. crude oil prices rose 8% to $73 per barrel.

Potential Disruption Risks in Middle Eastern Aluminum Production

According to ALD and SMM, by 2025, Middle Eastern alumina capacity is approximately 4.5 million tons per year, accounting for about 2% of global capacity; electrolytic aluminum capacity is about 6.92 million tons per year, or 9% of the global total; Iran’s electrolytic aluminum output is around 620,000 tons, representing 0.8% of global capacity. 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 supply to these countries, severely impacting their aluminum smelters.

Escalating European Energy Crisis Concerns May Catalyze Significant 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 strait 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 have a profound impact on the aluminum industry. According to EMBER, China’s energy import dependency is relatively low at 20%, and the country has competitive energy prices. Should an energy crisis occur again, the resulting increase in overseas costs would significantly boost profits for Chinese aluminum producers.

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 reduced Russian natural gas supplies caused electricity prices to soar, pushing some aluminum smelters’ 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 (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. Catalyzed by these events, 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. The CITIC Aluminum Industry Index saw a maximum increase of 100%.

Strengthening Narratives of AI Power Competition and Supply Disruptions May Reinforce Industry Supply Fragility Consensus

Regarding AI, 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 demand is gradually becoming tangible. On the disruption front, on February 12th, South 32 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” style event 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, and to enter a significant supply-demand gap in Q2. The average aluminum prices in 2026 are projected at 23,500–24,000 yuan/ton. The escalation of Middle East tensions and supply concerns may continue to push prices higher than previously anticipated. 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, over-expected new overseas electrolytic aluminum capacity, 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 renewed conflict between Israel and Palestine has significantly increased risks to aluminum production capacity, shipping capabilities, and energy supply in the Middle East. Subsequent 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 prices surpassing previous expectations. With the strong medium- and long-term fundamentals, we continue to favor a bullish outlook for aluminum prices and valuations.

Key Charts in the Aluminum Industry

(Source: Daily Economic News)