Aluminum prices soaring exacerbate manufacturing industry cost pressures! Under the disturbance of the "supply black hole", it is feared that a long-term rising cycle may be entered.

The supply risks triggered by the Middle East conflict have driven aluminum prices to multi-year highs, putting cost pressure on businesses ranging from car manufacturers to beer can manufacturers. Data shows that the London Metal Exchange (LME) aluminum price has risen by over 13% since the US and Israel launched attacks on Iran on February 28th, with a year-to-date increase of about 19% and reaching the highest level since 2022. Analyst Bob Brackett of the investment bank Bernstein pointed out that the increase in aluminum prices is mainly due to the closure of the Strait of Hormuz. The strait is an important channel for Middle East aluminum exports, and about 7% of global aluminum supply comes from that region. He added that the Middle East conflict has led to the destruction of related facilities and the withdrawal of about 3% of global aluminum supply from the market. It is reported that due to disruptions in navigation through the Strait of Hormuz, Alba, one of the largest single-site smelters in the world, has been forced to introduce production cutbacks in mid-March due to pressure from blocked metal exports and limited raw material supplies. The company has phased out three of its main production lines, directly affecting about 19% of its annual capacity, aiming to extend the use of existing bauxite and alumina inventories to ensure the long-term safe operation of the core part of the plant. In addition, Emirates Global Aluminium, the largest aluminum producer in the Middle East, has shut down production at one of its smelters after being hit by Iranian missile attacks, invoking force majeure clauses for at least partial deliveries. The impact of the rise in aluminum prices is beginning to show on the cost side for businesses. Sherry House, Chief Financial Officer of Ford Motor Company (F.US), stated that the Middle East war has made the outlook for aluminum, a key raw material for the company's F-150 pickup, more uncertain. The Detroit-based car maker expects adverse effects from commodities to exceed $2 billion, about twice the previous expectation, mainly due to the increase in aluminum prices. Sherry House told analysts at the end of last month: "Given the volatility we've seen in the commodities market, it's currently difficult to predict for 2027. For steel and aluminum, especially before the Middle East situation erupted, we had already seen industry shortages on a global scale." UBS Group AG analyst Joseph Spak noted that aluminum prices have been a focus of concern for Ford Motor Company investors. Since the outbreak of the Middle East conflict, Ford Motor Company's stock price has fallen by 17%, while the S&P 500 index has risen by 5.7% over the same period. However, Joseph Spak wrote in a report to clients last month that concerns on Wall Street about aluminum prices were "exaggerated," adding that Ford Motor Company had "hedged" the aluminum price risk for this year. Tracey Joubert, Chief Financial Officer of Molson Coors Beverage Company (TAP.US) engaged in beer production and sales, stated last week that the rise in aluminum prices to the Midwest United States has increased the company's first-quarter sales costs by about $30 million year over year. The company, which has been using recyclable aluminum cans for over sixty years and produces Coors Light and Miller Lite, expects aluminum prices to continue to rise in the current quarter. Anthony DiSilvestro, Chief Financial Officer of Keurig Dr Pepper (KDP.US), a non-alcoholic beverage producer, also listed aluminum as one of the products whose prices have risen due to the Middle East conflict. He stated that if these higher costs persist, the company will need to develop strategies to protect profit margins. He told analysts in a phone call last month: "Like many fast-moving consumer goods companies, we are directly and indirectly affected by the fluctuations in commodity prices caused by Middle Eastern conflicts." Supply shortages are difficult to relieve in the short term, and aluminum prices may soar to $4,000 Disturbances in aluminum supply are unlikely to be mitigated in the short term. UBS Group AG predicts that global aluminum supply will increase by only 0.3% in 2026, lower than the previously forecasted 2.4%. The bank points out that disturbances in the Middle East and limited expansion space in Europe are the main reasons. In addition to conflict factors, Bob Brackett said that aluminum production requires a large amount of energy, making its price related to natural gas and coal costs. The increase in prices of these fuels due to the Middle East conflict has further exacerbated the pressure on aluminum prices. Bob Brackett said in a report to clients last week: "Aluminum prices will rise with increasing input costs. There is further upside risk in aluminum prices, not only due to disruptions in the supply chain, but also due to interruptions in its energy sources." Previously, analysis has indicated that if the Middle East conflict persists and leads to sustained increases in energy prices, or if electricity costs for aluminum smelters in the Middle East or even globally rise, this could compress corporate profits. Considering that some countries in Europe and America have slow restarts and new capacity additions due to power supply issues, the increase in global energy costs could lead to shutdowns or cutbacks in high-cost regions, further affecting global primary aluminum supply and driving up aluminum prices. JPMorgan Chase warned last month that with severe and prolonged supply shortages in the global aluminum market, the aluminum industry is heading towards a very significant supply-side "black hole." The bank believes that the aluminum market is experiencing its largest supply shortage in 25 years, shifting from traditional cyclical tightness to a structural, sustained, and difficult-to-repair collapse in supply. The so-called "black hole" by JPMorgan Chase essentially refers to the fact that once a supply shortage is formed due to critical smelting capacity damage, even if geopolitical tensions ease or logistics conditions improve, the market cannot quickly return to its previous equilibrium. After direct damage to key smelting assets, this logic has been significantly weakened, and the upward trend in aluminum prices now reflects more the irrevocable loss of production capacity and the lag in supply recovery, rather than just political sentiment premiums. JPMorgan Chase emphasizes that the aluminum market is transitioning from an old narrative of long-term surplus to a new narrative dominated by capacity destruction, limited substitutes, and regional supply imbalances. The $4,000 target price is no longer seen as an aggressive scenario in this framework, but a natural result of the continued expansion of the supply black hole. Additionally, Goldman Sachs Group, Inc. warned in March that if the closure of Middle East waterways leads to depletion of stocks in that region, aluminum prices are highly likely to break through the psychological barrier of $4,000 per ton, causing profound impacts on the cost structure of downstream manufacturing industries globally. Bank of America Corp strategist Michael Hartnett, known as the "most accurate strategist on Wall Street," and his team released a report stating that even if a new round of Middle East conflicts temporarily comes to an end, the ongoing uptrend in the global commodities market will continue for many years until the end of 2030. The strategists wrote that over the next few years, investors will continue to flock to the commodities trading market, mainly because commodity trading themes will benefit from global geopolitical and macroeconomic turmoil. In the eyes of the Bank of America strategists, commodities are the most logically distinct and highest-level post-war trade, betting that commodities will replace stocks as the biggest winners in the coming years. The core reason is that investors urgently need to hedge against risks, inflation, and a weakening dollar, and geopolitics and the global AI competition essentially strengthen the competition for energy, rare earths, minerals, and key resources. The strategists even summarized the core logic as follows: whoever controls chips, rare earths, minerals, and efficient energy wins this global AI war. This means that for Bank of America, the pricing core of the post-war world is no longer just interest rates and profits, but resource security, supply chain control, and fiscal expansion.