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Aluminium Industry Trend & Analysis, Technology Review, Event Rundown and Much More …

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The Red Sea crisis is changing the contours of the aluminium trade

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The chaos brewing in the Red Sea seriously affects the global aluminium market. Militant attacks on ships passing through the Red Sea and Bab-el-Mandeb Strait are throwing off the balance of trade between Europe and Asia.

This mess forces ships to ditch the usual Suez Canal route and take the long, pricey route around the Cape of Good Hope. That adds weeks to delivery times and jacks up shipping costs. Egypt’s feeling the pinch, too, with a major hit to the fees they rake in from the Suez Canal.

The global implications

This Red Sea drama is not just some regional spat. It is a global headache. The attacks spotlight the vulnerability of key maritime routes, leading a US-led coalition to step up with air and naval patrols to keep shipping safe. But the damage is done, especially in Europe, where the usual flow of steel and aluminium is all out of whack. We are talking about hundreds of thousands of tonnes rerouted each month because of these security nightmares.

Let us talk about what this means for the aluminium game. The crisis has added more uncertainty to a situation that is already shaky. Europe’s dealing with its issues—recession fears, the Russia-Ukraine geopolitical crisis, sky-high energy costs, and those tense vibes between China and Taiwan. Now, with the usual sea route between Europe and Asia looking like a game of Russian roulette, the market’s feeling the strain.

Anirudha Agrawal, Director at Manaksia Aluminium, said, “Imported scrap has become expensive, and delayed arrivals have added to the woes of India’s recyclers.”

“Rising scrap prices and falling refined metal values have cut deep into the margins of recyclers, who are finding it commercially lucrative to raise the share of primary metal in the raw material mix.”

Aluminium alloy demand is strong due to healthy order books for the automobile and aviation sectors, with prices rising to $2,470/mt. Zorba 95/5 prices climbed 9% from $1,818/mt in October to $1,966/mt this month, while Tense prices increased 6% from $1,575/mt to $1,669/mt.

“An upward trajectory is anticipated in alloy market prices owing to domestic material shortages coupled with delayed arrivals of imports,” Agrawal added.

“However, scrap supply continues to be tight owing to a lack of recycling activity and high costs. Closure of Red Sea routes to leading shippers has impacted the cost of materials through a higher logistics and financing burden, with delivery times almost 2.5 times longer than normal.”

Global shipping apocalypse

One of the first punches we are feeling is the crazy spike in shipping costs and delays in getting aluminium where it needs to go. Freight rates? Through the roof. In some cases, rates have tripled. And forget about speedy deliveries; rerouting ships around Africa is adding weeks to the clock, messing with supply chain plans left and right. All this chaos translates to a major jump in aluminium prices, which means higher prices for everything from cars to construction materials.

But it is about more than just the immediate impact. The ripple effect is hitting the aluminium premiums market, too. Premiums in big hubs like Rotterdam have shot up by double digits since December, showing just how shaky the ground is regarding supply.

Now, let us zoom in on Europe. They are heavily reliant on imported aluminium and face a shrinking nearby supply pool. Due to the Ukraine-Russia geopolitical crisis and the impact of high energy prices, European production capacity has been taking hits lately. With all these obstacles piling up, European industries are staring down the barrel of higher costs and supply shortages just when they are supposed to be gearing up for green transitions.

Industry big shots are scratching their heads over this one. Balancing supply chain stability with geopolitical risks is a challenging feat. Some are discussing diversifying supply sources or beefing up logistics, while others are eyeing moves to safer production spots. But with no end in sight for the Red Sea saga, the future of the aluminium market is anyone’s guess. And all this uncertainty? It is not doing anyone any favours, especially not in an already shaky global economy.

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