Commodity trader Mercuria plans to withdraw large volumes of aluminum from LME warehouses, according to three sources, as the shutdown of the Strait of Hormuz freezes Middle East shipments and further strains supplies in Europe and the United States.
The Middle East produces about seven million metric tons of primary aluminum annually or around 9% of the global total.
The closure of the Strait of Hormuz due to the US-Israeli war against Iran has stalled aluminum shipments since last week.
Swiss-based Mercuria cancelled or earmarked for delivery nearly 100,000 tons of aluminum in LME-approved warehouses in Port Klang, Malaysia on Monday, the sources, who were familiar with the matter, said.
Mercuria declined to comment.
Aluminum producers in the Middle East include Emirates Global Aluminium, Aluminium Bahrain and Qatalum.
Last week, Alba, which operates one of the world’s biggest smelters, declared force majeure, warning customers of delays to shipments while Qatalum started to shut down.
Slow process to restart production
Smelters have to reduce production slowly to avoid permanently damaging the aluminum pots that hold the molten metal. Once pots are cooled, restarting them is a slow process, keeping metal off the market for many more months.
Mercuria is likely to need the aluminum in LME storage facilities to meet obligations to customers in Europe and the US, where there are shortages of aluminum used in transport, construction and packaging, the sources said.
The physical market premium aluminum consumers in the United States and Europe pay above the LME price — currently around $3,450 a ton – have soared since the war started.
In Europe, the duty-paid aluminum premium at around $420 a ton is at its highest since September 2022 when consumers stopped buying Russian aluminum after Russia invaded Ukraine.
In the United States, the Midwest premium at around $1.09 a lb. or $2,400 a ton is near record highs.
Cancelled warrants — title documents conferring ownership — stood at 177,325, or 40% of the total on Tuesday, compared with 9% on February 27, before the turmoil in the Middle East started.
Last week Swiss commodity trader Gunvor cancelled more than 45,000 tons of aluminum in LME warehouses in Port Klang, the sources said.
Gunvor declined to comment.
(By Pratima Desai, Polina Devitt and Tom Daly; Editing by Bernadette Baum)
