CITIC SEC: Rising tensions in the Middle East may catalyze aluminum prices to increase more than expected.

CITIC SEC released a research report stating that the conflict between Iran and Israel has reignited, and risks in the Middle East region related to aluminum industry capacity, shipping capacity, and energy supply have significantly increased. The disruption in the production chain of the aluminum industry in the Middle East and even the risk of a second energy crisis overseas should not be underestimated. Looking back at the energy crisis of 2021-22, aluminum prices and sectors saw the largest increases of up to 60%/100%. Looking ahead, concerns over the supply of the aluminum production chain may lead to price increases beyond previous expectations. Coupled with the strong long-term supply and demand logic of the aluminum industry, the outlook for aluminum sector price valuations is positive. Key events: On February 28th, the situation in Iran escalated into a military conflict. As of now, the situation in Iran is still rapidly changing. According to the Wall Street Journal, on March 2nd, Qatar announced a suspension of LNG production at the Ras Laffan facility after intercepting two Iranian drones targeting its critical energy facilities. Additionally, oil tanker traffic through the Strait of Hormuz has almost come to a halt. These factors have led to a 45% increase in European LNG prices to 46 euros/MWh, a level close to the 51% increase during the Russia-Ukraine conflict in 2022. After Iran announced the closure of the Strait of Hormuz, U.S. crude oil prices rose by 8% to $73 per barrel. CITIC SEC's main points are as follows: - Risk of disruption in aluminum production in the Middle East. - Concerns over the European energy crisis may catalyze significant increases in global aluminum prices. The report highlights the risks of disruptions in aluminum production in the Middle East due to attacks on energy infrastructure in the region. It also discusses the potential impact of a prolonged crisis in Iran on global energy supplies and prices. The report concludes that the aluminum industry could see significant price increases due to the ongoing tensions in the Middle East and the European energy crisis. Overall, CITIC SEC remains optimistic about investment opportunities in the aluminum sector and projects steady growth in aluminum prices in the coming year. Risks of global trade disputes, unexpected increase in overseas aluminum production capacity, lower-than-expected downstream demand for aluminum, significant rise in global energy costs, disruptions in the supply of raw materials from the mining end, and lower-than-expected increase in dividend payout proportions for Chinese aluminum companies are highlighted as potential risk factors.