European aluminum billet premium doubles after Iran war disrupts supply, squeezes consumers

The premium in Europe for aluminum billet, a semi-finished product, has doubled since the Iran war started due to shortages stemming from two months of disrupted Middle East supply, squeezing consumers in construction and transport.

Exports from the Gulf region, a key supplier of primary aluminum, billet and other alloys to Europe, have been curbed after the conflict largely suspended the bulk of shipping through the Strait of Hormuz.

Production of the metal has also been hit in the Middle East, which accounts for 9% of global supply with its 7 million metric tons of annual capacity.

“For now, the most acute situation is with the aluminum billet,” a source in metals logistics told Reuters, referring to the situation in Europe. Aluminum billet is a solid block of high-purity aluminum often used for high-performance parts.

Supply conditions are set to tighten further in the coming weeks as stocks held by Gulf producers in Europe are gradually depleted, the source added.

In Rotterdam, the premium for aluminum extrusion billet over the benchmark price, according to Fastmarkets, has more than doubled to $1,100 a metric ton by Friday from the pre-war level of $530.

Having hit four-year highs at $3,672 a metric ton on April 16, benchmark aluminum prices on the London Metal Exchange are up 12% since the US and Israel launched strikes on Iran on February 28.

The physical premium European buyers pay above the LME price for primary aluminum, to cover freight, taxes and handling costs, is up 63% since the war started – at $585 a ton. For May and June, the premium is $625 as of Monday.

Adding to the strain, Emirates Global Aluminium (EGA) has declared force majeure on some aluminum billet contracts with European customers, according to two sources, after one of its smelters in the UAE was hit by an Iranian attack in late March.

EGA did not reply to a Reuters‘ request for comment.

Disrupted Middle East supply has coincided with a pause in deliveries from Kubikenborg Aluminium (Kubal), Sweden’s only aluminum smelter owned by Russia’s Rusal, further tightening near-term availability in Europe, one source said.

Kubal continues to produce, but halted deliveries on April 9, its chief executive Mats Andersson told Reuters.

The CEO came under investigation in Sweden for possible breach of sanctions linked to Russia’s war in Ukraine, a local prosecutor said earlier this month.

Andersson declined to comment on the investigation or say why deliveries had been halted. Kubal has annual production capacity of 128,000 tons.

(By Polina Devitt, Eric Onstad, Johan Ahlander and Anna Ringstrom; Editing by Keith Weir)