Petroleum Coke Supply Risks Impact Global Aluminum Industry; Maintaining Overweight Ratings on Multiple Aluminum Companies

Overview

This JPMorgan research report focuses on the profound impact of disruptions in the Strait of Hormuz on the global aluminum supply chain, specifically pointing out that petroleum coke—a often-overlooked raw material—could become the next major risk factor for aluminum supply. Petroleum coke is a critical component in manufacturing carbon anodes for aluminum electrolysis, and the reduction in crude oil production caused by Middle East conflicts has begun to affect the petroleum coke market. The report analyzes differences among major aluminum producers regarding raw material inventories, procurement strategies, and cost exposure, concluding that the aluminum industry will remain reliant on petroleum coke in the short term. Overall, the firm maintains its overweight ratings on leading global aluminum companies, believing that supply-side constraints will continue to support aluminum prices and company performance.

Core views

Petroleum Coke Supply Risk Analysis: Petroleum coke serves as a key ingredient in carbon anodes used in aluminum smelting, with each ton of aluminum requiring 0.4–0.5 tons of carbon anode material. Disruptions in crude oil supplies from the Middle East directly impact the output of petroleum coke, a secondary product. Since the conflict began, Brent crude oil prices have surged by more than 50%, whereas U.S. petroleum coke prices along the Gulf Coast have risen by only about 21%. The report notes that the petroleum coke market is small, opaque, and illiquid, leaving consumers without effective hedging tools, thereby amplifying potential supply disruption risks. The Gulf region’s aluminum industry faces multiple shocks: disruptions in the Strait of Hormuz pose multifaceted risks to the global aluminum sector. With roughly 7 million tons per year of smelting capacity—accounting for about 9% of global capacity—the region has experienced two attacks on smelters, disrupting approximately 3% of global production. Additionally, the area suffers from alumina shortages, typically relying on imports of around 8 million tons annually through the strait. Although current petroleum coke supplies are tight due to production halts, there remains a risk of supply-demand mismatches—if the conflict resolves, smelters may take 12–18 months to resume operations, potentially allowing coke production to restart before smelting capacity does. Major Aluminum Producers’ Responses and Cost Exposure: Based on Q1 2026 results and industry surveys, aluminum producers hold differing views on petroleum coke inventory levels. Alumina Inc. highlights chronic shortages in the Middle East and estimates that every $10 per ton change in petroleum coke prices translates into roughly $8 million in annualized cost sensitivity, with carbon-related costs comprising 15–20% of its cash costs. Norsk Hydro reports no immediate shortages, having secured most of its petroleum coke via 1–2-year contracts, effectively locking in costs. Chinese producers like China Hongqiao generally purchase pre-baked anodes directly, maintaining about one month’s worth of inventory, with minor price increases easily absorbed within current profit margins. Long-Term Technological Substitution Remains Distant: The report explores progress toward replacing carbon anodes with inert anodes. ELYSIS achieved the first commercial-scale anode cell at Rio Tinto’s Alma smelter in November 2025, and Rusal announced successful production of aluminum using inert anodes in August 2025. However, Norsk Hydro remains cautious, prioritizing carbon capture (CCS) and HalZero technologies instead. The report concludes that substantial efforts to eliminate petroleum coke will only yield tangible results over the long term, meaning the aluminum industry will continue to depend on petroleum coke in the near future.

Analysis framework

This report follows a supply-chain transmission logic—‘macro geopolitical events → raw material supply impacts → micro-level corporate costs and profitability effects → investment target selection.’ First, the firm begins with the geopolitical event of Strait of Hormuz disruptions, tracking their influence on crude oil prices and related byproducts such as petroleum coke. By comparing the divergent price movements between crude oil and petroleum coke, the report identifies latent supply risks inherent in the petroleum coke market, which lacks transparency and adequate hedging mechanisms. Next, employing a supply-and-demand framework, the report examines the aluminum industry landscape in the Gulf region, noting that it serves as both a major aluminum smelting hub—accounting for 9% of global capacity—and a heavy importer of alumina via the strait, creating multiple supply bottlenecks. Furthermore, the report considers post-conflict supply-demand mismatch risks—where coke production could recover faster than smelting capacity, potentially causing short-term imbalances. At the corporate level, the report assesses how different aluminum producers manage procurement contract durations (long-term 1–2-year agreements versus monthly purchases), inventory levels (1–2 months vs. one month), and cost sensitivities (each $10 per ton fluctuation affecting annualized costs). Finally, combining valuation tables with advancements in decarbonization technologies, the report confirms that the aluminum industry will remain dependent on petroleum coke in the short-to-medium term, thus justifying continued overweight ratings on leading aluminum companies.

Methodology notes

• Industry/sector analysis frameworkSupply Chain Upstream–Midstream–Downstream Transmission

  Analysis method tracing the flow of risks from upstream raw materials (petroleum coke) through midstream processes (carbon anodes, electrolytic aluminum) to downstream corporate profits.

  This approach tracks how reductions in crude oil production lead to tighter petroleum coke supplies, subsequently increasing carbon anode costs for aluminum producers, illustrating the cascading nature of supply-chain risks.

• Industry/sector analysis frameworkSupply-demand framework

  Analyzing price volatility arising from misaligned recovery rhythms between supply and demand.

  The report points out that if Middle East conflicts resolve, petroleum coke production might resume sooner than smelting capacity, which could create short-term supply-demand mismatches.

• Company fundamentals and financial frameworkProfit Quality Analysis

  Measuring how changes in key raw material prices affect corporate costs and profits.

  Drawing on data from Alumina Inc., the report notes that every $10 per ton change in petroleum coke prices impacts the company’s annualized costs by approximately $8 million, while carbon-related costs comprise 15–20% of total cash costs, enabling assessment of corporate vulnerability to raw material price fluctuations.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Norsk Hydro (NHY.OL)

  Benefit: Under petroleum coke supply risks, its long-term contracted procurement model locks in costs, supporting an overweight rating with the highest implied upside potential.

  Strengths

  Most petroleum coke is procured under 1–2-year contracts, keeping costs relatively fixed; currently no shortages; actively developing decarbonization technologies such as HalZero.

  Weaknesses

  Cautious stance toward inert anode technology, viewing it as more suitable for new smelters.

  Comparison

  Implied upside of 30%, surpassing Alumina Inc. (13%) and Rio Tinto (5%).

• China Aluminum Corporation (2600.HK)

  Benefit: Overweight rating with implied upside of 41%.

  Comparison

  Second-highest implied upside among covered stocks, with a PE ratio (2026: 7.8x) below industry average.

• China Hongqiao (1378.HK)

  Benefit: Overweight rating with implied upside of 39%.

  Strengths

  Holds about one month’s worth of pre-baked anode inventory, ensuring stable supply; minor price increases can be absorbed within current profit margins.

  Weaknesses

  Directly purchasing pre-baked anodes limits visibility into upstream petroleum coke dynamics.

  Comparison

  Implied upside of 39%, with a relatively high dividend yield (7.6%).

• Press Metal (PMAH.MK)

  Benefit: Overweight rating, typically procuring carbon anodes rather than directly sourcing petroleum coke.

  Strengths

  Currently no shortages, with manageable cost pressures.

  Weaknesses

  Limited direct visibility into upstream petroleum coke markets.

  Comparison

  Implied upside of 15%, with a higher valuation (PE 2026: 27.8x).

• Vedanta (VEDL.IN)

  Benefit: Overweight rating with implied upside of 8%.

  Comparison

  Extremely high dividend yield (12.2%), but no significant cost advantages.

• Hindalco (HNDL.IN)

  Benefit: Overweight rating with implied upside of 8%.

  Comparison

  Valuation (PE 2026: 14.6x) close to industry average.

• Alcoa (AA.US)

  Neutral: Neutral rating, significantly impacted by rising petroleum coke costs.

  Weaknesses

  Imports approximately 1 million tons per year of calcined coke from the Middle East, facing mounting costs for imported anodes, calcined coke, and coal tar pitch.

  Comparison

  Neutral rating, with implied upside of 13%.

  Risks

  Increased import costs and uncertainty due to Strait of Hormuz disruptions.

• Rio Tinto (RIO.AU / RIO.LN)

  Neutral/Benefit: Australia overweight, UK neutral; ELYSIS leads in inert anode technology development.

  Strengths

  ELYSIS achieved the first commercial-scale anode cell at Quebec’s Alma smelter in November 2025.

  Comparison

  Australian implied upside of 5%, UK neutral implied downside of 3%.

Key data

• Carbon Anode Consumption Rate0.4–0.5 tons per ton of aluminumAmount of carbon anode material required per ton of aluminum produced
• Gulf Region Aluminum Smelting CapacityApproximately 7 million tons per yearAccounts for about 9% of global aluminum smelting capacity
• Gulf Region Alumina Import VolumeAbout 8 million tons per yearTypically imported via the Strait of Hormuz
• Petroleum Coke Price IncreaseAround +21%Price increase since the outbreak of the Iran–U.S. conflict, measured along the U.S. Gulf Coast
• Brent Crude Oil Price Increase>50%Increase since the conflict began, exceeding petroleum coke price growth
• Carbon-Related Cost Share15–20%Based on recent disclosures from Norsk Hydro and Alumina Inc., carbon-related costs constitute 15–20% of aluminum’s cash costs
• Alumina Inc. Cost SensitivityApproximately $8 million per $10 per ton changeAnnualized cost impact of petroleum coke price fluctuations on Alumina Inc.
• Norsk Hydro Implied Upside30%Target price 137.0, current price 105.2
• Chinalco Implied Upside41%Target price 16.0, current price 11.4
• China Hongqiao Implied Upside39%Target price 46.0, current price 33.2

Impact & implications

The report argues that petroleum coke supply risks stemming from Strait of Hormuz disruptions will exert structural impacts across the global aluminum industry. On one hand, constrained supplies and rising prices will directly drive up smelting costs, putting pressure on profits for companies lacking long-term contractual protections or sufficient inventory reserves. On the other hand, disruptions to Gulf-region aluminum smelting capacity may exacerbate global aluminum supply shortages, providing upward pressure on aluminum prices and benefiting leading aluminum producers with strong cost-control capabilities and stable supply chains. Consequently, the report maintains overweight ratings on Norsk Hydro, Chinalco, China Hongqiao, Press Metal, Vedanta, and Hindalco, asserting that these companies possess superior resilience against current market conditions and greater growth potential.

Risks

• Continued disruptions in the Strait of Hormuz, further tightening supplies of petroleum coke and alumina.
• Post-conflict supply-demand mismatch risks: coke production may recover faster than smelting capacity, leading to short-term price pressures.
• Opacity and illiquidity of the petroleum coke market, leaving consumers without effective hedging tools and amplifying price volatility.
• Uncertainty surrounding approximately 1 million tons per year of calcined coke imports from the Middle East.

What to watch

• Future trends in petroleum coke prices and their transmission to aluminum producers’ carbon costs.
• Inventory levels and procurement strategy adjustments among major aluminum producers.
• Developments in the Strait of Hormuz and progress in restoring smelting capacity in the Middle East.
• Commercialization timelines for alternative technologies such as inert anodes.
• Ongoing impacts of petroleum coke price hikes on carbon costs after Q2 2026.