Zhongjin: Disturbance of US-Iran Situation Disrupts Aluminum Supply, Bullish on Aluminum Price and Ton Aluminum Profit Expansion Reassessment Opportunity

Zhongjin released a research report stating that on March 3rd and 4th, Middle East aluminum electrolysis companies Qatar Aluminum Industry and Bahrain Aluminum Industry successively announced that they had encountered force majeure. In response to this news, the LME aluminum price continued to rise. The core reason for the production shutdown of Qatar Aluminum Industry this time is that it has been threatened by disruptions in natural gas energy supply. Out of safety and operational considerations, they chose to proactively close the aluminum electrolysis plant. Considering the high risk of energy supply disruption in the Middle East region, other aluminum electrolysis plants may follow Qatar Aluminum Industry's example and prepare for an early shutdown. The gap between aluminum supply and demand is widening, and vulnerabilities have been heightened by the US-Iran conflict, coupled with global active fiscal and monetary policy resonance, aluminum prices are expected to reach new highs; considering low costs, ton aluminum profits are expected to further expand. Key points from Zhongjin: Event: On March 3rd and 4th, Middle East aluminum electrolysis companies Qatar Aluminum Industry and Bahrain Aluminum Industry successively announced that they had encountered force majeure. Qatar Aluminum Industry has an annual production capacity of 636,000 tons, and Bahrain Aluminum Industry has an annual production capacity of 1.62 million tons, accounting for 0.8% and 2.0% of the global total, respectively. In light of this news, LME aluminum prices continued to rise, increasing by 2.5% on March 3rd, and reaching a high of 5% in the overnight session on March 4th, touching $3,418 per ton, which is a new high since 2022. Regarding the current US-Iran conflict, if the impact is prolonged, it may further affect the aluminum industry chain in the Middle East region and the global aluminum supply chain. 1. Production safety risks may further expand the scope of shutdowns in the region. All aluminum electrolysis production in the Middle East relies on natural gas power generation, and if pipelines are attacked leading to energy interruptions, aluminum electrolysis plants face the risk of emergency shutdowns. Firstly, unstable power supply to aluminum electrolysis plants can lead to safety accidents such as short circuits; secondly, the high costs and long time required for recovery from emergency shutdowns. The core reason for Qatar Aluminum Industry's production shutdown this time was the threat posed by disruptions in natural gas energy supply, and out of safety and operational considerations, they chose to proactively close the aluminum electrolysis plant. Considering the high risks of energy supply disruption in the Middle East region, other aluminum electrolysis plants may follow Qatar Aluminum Industry's example and prepare for an early shutdown. 2. Closure of the Strait of Hormuz interrupts raw material imports and product exports. From the perspective of aluminum electrolysis exports, according to CRU, the Middle East region's aluminum electrolysis production capacity is 7.05 million tons by 2025, accounting for 9% of the global total, and the Strait of Hormuz is the core marine passage for aluminum electrolysis exports in the Middle East region. Closure of the strait could prevent products in the region from being exported. From the perspective of raw material imports, according to CRU, the region's alumina production capacity is 4.55 million tons, with an external dependence rate of 68%. Considering that aluminum electrolysis plants currently have about one month of raw material inventory, if the strait remains closed, the possibility of reduced production and shutdowns in the region is gradually increasing. 3. Disruption in LNG transportation stimulates a sharp increase in European natural gas prices, with aluminum electrolysis plants in Europe facing the risk of shutdowns. Qatar's LNG energy supply accounts for about 20% of the global total, but after being attacked on March 2nd, it was forced to shut down, leading to a continuous 60% increase in the European benchmark natural gas price over two days. Natural gas power generation in Europe accounts for approximately 16%, and continued energy interruptions could lead to energy supply shortages, forcing aluminum electrolysis plants to close down. Opportunities brought by bullish aluminum prices and expanding ton aluminum profits Zhongjin believes that the widening gap between aluminum supply and demand, coupled with increased vulnerabilities brought about by the US-Iran conflict, along with global active fiscal and monetary policy resonance, make it likely for aluminum prices to reach new highs; considering the low costs, ton aluminum profits are expected to further expand. Considering the rebound in energy and alumina prices, it is recommended to focus on targets with high electricity and alumina self-sufficiency rates. Recommended stocks include NANSHAN AL INTL(02610), CHINAHONGQIAO(01378), Aluminum Corporation Of China(601600.SH), Tianshan Aluminum Group(002532.SZ), Shandong Nanshan Aluminium(600219.SH), Hebei Huatong Wires & Cables Group(605196.SH). Risk factors include significant fluctuations in aluminum prices and changes in the Middle East situation.