Potential drop in global aluminium demand could offset supply issues
Middle East holds 9% of global aluminium smelting capacity
Middle east aluminium producers import alumina
By Pratima Desai
LONDON, March 10 (Reuters) - Investment firm Ninety One increased aluminium exposure in its Global Natural Resources Fund after the Middle East conflict led to the closure of the Strait of Hormuz, threatening global supplies of the metal.
The Middle East is home to around seven million metric tons of aluminium smelting capacity or roughly 9% of the global total.
"We could lose a significant amount of supply in a market that is already quite tight," said George Cheveley, who manages the fund alongside Paul Gooden and Dawid Heyl.
"We were overweight aluminum coming into this a week ago, and we're more overweight now. We've added aluminum producers who are unaffected, mainly Hongqiao 1378.HK in China," Cheveley told Reuters in an interview.
The fund's aluminium exposure also includes diversified miner Rio Tinto RIO.L, RIO.AX which last year produced 3.4 million tons of the metal used in the transport, construction and packaging industries.
Feedstocks for aluminium smelting include power, carbon and alumina produced from bauxite.
Last week Aluminium Bahrain <ALBH.BH> or Alba, which runs one of the world's biggest smelters, declared force majeure warning customers of delays to shipments while Qatari smelter Qatalum started to shut down.
"The problem for Alba, Qatalum and EGA (Emirates Global Aluminium) is they import alumina and bauxite. EGA imports both bauxite and alumina," Cheveley said. "Unless they think the Straits are going to open by next week, more production will be taken offline."
Aluminium supply is highly vulnerable to energy disruptions because smelters cannot be shut down and restarted quickly. Cutting power too abruptly risks damaging the pots that hold the molten metal. To avoid permanent damage smelters have to reduce production slowly. Once pots are cooled, restarting them is a slow process, keeping metal off the market long after the initial shock has passed.
"If the conflict carries on, global demand for aluminum might come down anyway. If it falls 5%, then the problem is solved," Cheveley said.
(Reporting by Pratima Desai; editing by Chizu Nomiyama )
((pratima.desai@thomsonreuters.com))