Rolls of semi-finished aluminum at an Alcoa factory. (Photo by Sean Gallup/Getty Images)
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Big aluminum producer Alcoa has been a winner from the war in Iran and its share price, already up 49% over the past 12-months, could go higher if the latest investment bank research is right.
UBS last week upgraded Alcoa from a neutral investment recommendation to buy, forecasting a lift in its Australian listed shares to A$110 ($78), up 11% on last sales and up 23.5% from Friday when the bank sent its note to clients.
Other aluminum producers, including Australia’s South32 and Norway’s Norsk Hydro have also been rising with the price of the metal which is up 15% since the war started in late February and up 47% since this time last year.
Driving the aluminum price, which last traded at $3650 a ton on the London Metal Exchange (LME), is the loss of an estimated 9% of global production which normally comes from smelters in countries affected by the war.
Smoke rises after Iran carried out a missile strike on Bahrain. (Photo by Stringer/Anadolu via Getty Images)
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Closures, or partial shutdowns, have been forced on factories in the United Arab Emirates, Bahrain, Qatar, and Iran because of damage to equipment or shortages of raw material, especially alumina, the essential feedstock for metal production.
UBS said the potential for a protracted Middle East supply disruption was not currently priced into aluminum.
Demand for the metal is said to be soft and affected by elevated inventories in China with factors likely to see the LME price consolidate in the near term, UBS said.
“But we expect more than three million tons of supply disruption from the Middle East conflict to more than offset demand weakness/substitution,” UBS said.
“The resulting deficits are likely to support higher aluminum prices and premiums over the next one-to-two years regardless of if/when (metal) flows resume through the Strait of Hormuz.”
UBS expects Alcoa to slip from a net debt position to net cash this year with the company’s cash balance rising to $1.8 billion next year which could be a signal for an increase in shareholder returns.
Citi, another investment bank, is more optimistic than UBS last week describing than aluminum market as “the most bullish set-up in more than 50 years” with the price heading for a short-term level of $4000/t.
Pouring molten aluminum into a crucible. Photographer: Nathan Laine/Bloomberg
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“The aluminum market has just been hit by one of the largest supply shocks in its modern history, certainly since the 1970s when the first and second energy shocks led to substantial output cuts,” Citi aid.
"At the same time, spare capacity is near zero, inventories pre-shock were already at all-time lows, and the cost of substitutes such as copper and plastics are extremely high by historical standard.
“We see aluminum inventories drawing to fresh all-time lows over the next six-to-12 months with the associated buying of physical inventory futures driving the price up to average $4000/t during the second half of 2026. In our bull case aluminum could average $5350/t in 2027.”
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