War? What war? Aluminium’s Gulf disruption premium vanishes
Over the past few months, we have repeatedly drawn attention to an issue that risks being underestimated: the aluminium price alone no longer tells the full story about the state of the market. The analysis published by Reuters – and commented by FACE in this post – confirms a trend that we have been monitoring for some time. Despite attacks on Gulf smelters removing around 2 million tonnes of production capacity from the global supply chain, prices on the London Metal Exchange have returned to their pre-conflict levels. This could easily lead to the conclusion that the market has absorbed the shock without difficulty.
In reality, it’s a different story. The decline in Gulf production is currently being offset by rising exports from China and Indonesia and, above all, by inventories built up in Europe ahead of the introduction of the Carbon Border Adjustment Mechanism (CBAM). These, however, are temporary factors that do not address the structural vulnerabilities of the supply chain.
The most significant indicator lies elsewhere: while the geopolitical risk premium on LME futures has eased, European physical premiums continue to rise, signalling that those operating in the physical market still perceive considerable pressure on metal availability.
For Europe, this is yet another reminder of the urgent need to strengthen supply chain resilience. We cannot continue to rely almost exclusively on imports of primary aluminium without an industrial strategy that ensures security of supply, diversification of sourcing, support for recycling and the development of new strategic logistics corridors, such as IMEC, which FACE has consistently advocated.
Today, competitiveness, sovereignty and strategic resilience must take into account the factors of long-term availability and business continuity in a deteriorating environment.
The full article by Reuters is available here.
