Aluminium prices climb as focus turns to Middle Eastern supplies

LONDON: Aluminium prices rose to their highest in more than a month on Monday after US and Israeli strikes in Iran fuelled concerns about prolonged conflict in the Middle East, a major producer of the metal.

Benchmark aluminium on the London Metal Exchange traded 2.9percent higher at USD3,232 a metric ton in official rings after touching USD3,254 for its highest since January 29.

Investors are closely watching developments around shipping in the Strait of Hormuz, an important commodities trade route disrupted by Iranian attacks on US military bases in the region.

“Base metals are largely higher this morning as aluminium climbs on concerns that a critical supply route for Middle Eastern producers will be disrupted by conflict in a region responsible for a significant chunk of global output,” said Neil Welsh at Britannia Global Markets.

“The region accounts for about 9percent of the world’s aluminium production capacity and prices have typically been sensitive to spikes in regional tensions.”

Global production of primary aluminium amounted to about 75 million tons last year, according to the International Aluminium Institute. Most of the aluminium produced in the Middle East is exported to the United States and Europe.

“The UAE is by far the largest producer in the region, and - with the exception of Oman’s Sohar Aluminium, which exports via the Gulf of Oman - virtually all regional shipments must transit the Strait of Hormuz,” Citi analysts said in a note.

Concerns about aluminium supplies have narrowed the discount for the cash contract over the three-month forward to near zero from USD12 a ton on Friday and USD36 a ton in the middle of February.

However, a protracted war in the Middle East is also likely to drive oil prices significantly higher, dragging on economic growth. “We should expect global investment sentiment to falter, undermining industrial metals demand growth - including copper,” said Panmure Liberum analyst Tom Price.

Copper was down 0.4percent at USD13,285 a ton, zinc gained 1.5percent to USD3,367, lead rose 0.8percent to USD1,977.5 and tin lost 1.6percent to USD56,800 while nickel retreated 1.6percent to USD17,550.