The global aluminum market is currently experiencing a significant “black swan” event due to disruptions caused by the ongoing conflict in the Middle East, said a top metal analyst.

“The scale of the supply shock we’re seeing in the aluminum market is probably the largest single supply shock a base metals market has suffered in the post-2000 era,” Nick Snowdon, Mercuria's head of metals and mining research, told Reuters at the sidelines of the FT Commodities Global Summit in Lausanne on Tuesday.

The Middle East region contributes around 7 million metric tons of annual aluminum smelting capacity, which is nearly 9% of the estimated global supply for this year, according to Mercuria.

Mercuria told the publication that Middle East aluminum is hard to replace, with China capped on output and limited spare capacity in the U.S. and Europe, leaving them vulnerable to supply shocks.

Read Also: Constellium Stock Near 52-Week High, Airbus Deal In Focus

Energy Shock Sends Aluminum Soaring

The ongoing Middle East conflict has evolved into one of the most severe recent energy shocks, according to the International Energy Agency, the International Monetary Fund, and the World Bank. The crisis has had polarizing effects, with energy and aluminum markets facing immediate supply shortages.

Missile and drone strikes on major producers, including Emirates Global Aluminum and Aluminum Bahrain (Alba), have partially shut down operations. The IRGC hit Aluminum Bahrain's facility, the world's largest single-site smelter at 1.6 million metric tons of annual capacity, and Emirates Global Aluminum's Al Taweelah site. EGA reported "significant damage.”

The result is the rally to multi-year highs that prompted analysts and investors to revise their price targets. At 6:51 am ET on the London Metal Exchange, aluminum was trading was trading 2.36% higher at $3,615.90 per ton.

Mercuria projects a roughly 2 million ton deficit by year-end, but notes the estimate could be conservative if improved alumina flows through the Strait of Hormuz allow some smelters to restart production this quarter.’

Some of the ETFs to focus on are  Invesco DB Base Metals Fund (NYSE:DBB), Global X Commodity Strategy ETF (BATS:COMD) and iShares US Basic Materials ETF (NYSE:IYM).

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Image via Shutterstock