Goldman Sachs warns: The outlook for aluminum supply in the Persian Gulf has turned bearish, and long-term prices face upward risk

Ask AI · Why does the EGA smelter’s frozen pot need half a year to repair?

Source: Jintiao Data

Affected by the US-Iran conflict, the supply outlook for Middle Eastern aluminum is clouded. Goldman Sachs warned that the UAE’s aluminum giant being attacked and the risk of the Strait of Hormuz being disrupted are endangering the region’s capacity expansion plans, and London aluminum prices have surged to a four-year high.

Ongoing armed conflicts in the Persian Gulf region are making the outlook for this global aluminum supply growth driver increasingly hard to predict. Goldman Sachs (Goldman Sachs) latest alert states that geopolitical conflict has severely disrupted the region’s aluminum capacity expansion process, and that the region’s current aluminum output already accounts for one-fifth of the world’s total output (excluding China).

Driven by risks of Iranian military strikes and supply disruptions, London Metal Exchange (LME) aluminum prices closed on Wednesday at the highest level in more than four years. Market sentiment is tense, and it has nearly returned to the volatility levels seen at the beginning of the Russia-Ukraine conflict.

Trina Chen, head of equity research at Goldman Sachs, said in an interview with Bloomberg TV: “With a huge energy cost advantage, the industry initially expected the Persian Gulf to build more smelters to meet the world’s future demand growth. But at the moment, the path to realizing this expectation is full of variables.” She noted that uncertainty in long-term supply is significantly increasing the risk of aluminum prices climbing higher.

The core of this supply crisis lies in the Middle Eastern aluminum giant—the UAE’s Emirates Global Aluminium (EGA). After it was hit by Iranian missile and drone attacks, power supply was interrupted, forcing EGA’s Al Taweelah smelter into an “uncontrolled shutdown” state. In this situation, the molten aluminum in the smelting pots cools rapidly and solidifies inside the equipment—what the industry commonly calls “frozen pots.”

Chen said that once a “frozen pot” occurs, the damaged smelting pots often take six to eight months to be cleaned again and put back into operation. Beyond the pressure of technical repair, EGA also has to assess whether the future operating environment will have ongoing stable conditions, which will further lengthen the time needed to restart production.

In addition, with the Strait of Hormuz facing threats of a blockade, the aluminum industry in the region also faces secondary risks such as depletion of raw material inventories and subsequent supply being unable to keep going. As capacity expansion plans are put on hold because of the fighting, the long-term supply picture of the global aluminum market is facing severe challenges.