Operational risks at Middle East aluminum smelters are rising, and GCC output may be cut further if the crisis persists

Overview

This report compiles the key points from a Goldman Sachs expert call on operational risks and prospects for Middle East aluminum smelters. The interviewed expert has 15 years of GCC experience and spent about ten years in strategy and corporate development at Emirates Global Aluminum, covering supply and demand, trade flows, pricing, and contingency planning for a Strait of Hormuz closure scenario. The report focuses on evaluating potential production levels for GCC aluminum smelting capacity under conflict, drone attacks, gas and power supply disruptions, difficulties in importing raw materials, and alternative logistics routes.

Core views

The core view is that the risks facing Middle East aluminum smelters have expanded from a single shipping disruption to comprehensive operational risks spanning raw materials, energy, power, and restart cycles. GCC smelters originally relied on local natural gas energy, imported alumina/petroleum coke/bitumen and other raw materials, and exported aluminum metal, leaving this model highly vulnerable if the Strait of Hormuz becomes impassable. Current production cuts are about 800kt, with annualized output at roughly 5.2mnt; if the crisis persists, output could fall to 4.6mnt within 4-8 weeks and potentially to 3.5-4.0mnt in a prolonged scenario.

Analysis framework

The report uses expert interviews and scenario analysis, breaking down production impacts into realized voluntary cuts, additional impacts after drone attacks, potential cuts over the next 4-8 weeks, and a long-term scenario with constrained logistics, while assessing sustainable production levels based on major smelter locations, capacity, raw material sourcing, alternative ports, and transport distances.

Methodology notes

• Scenario analysisGCC aluminum output scenarios

  Estimate annualized output by conflict duration and logistics constraints

  Using 6.0mnt as the pre-conflict baseline, the report sequentially evaluates a 550kt voluntary cut, a total cut of about 800kt after drone attacks, output of 4.6mnt under a crisis lasting 4-8 weeks, and an output range of 3.5-4.0mnt under prolonged disruption.

• Operational risk analysisAssessment of raw material and logistics bottlenecks

  Judge alternative-route feasibility by port, road, transport distance, and raw material form

  The Sohar route is relatively feasible for smelters in the UAE and Oman; transport via the Red Sea and Saudi inland over about 1,500 km is only partly feasible for Alba, Ma'aden, and Qatalum, and long-distance trucking of liquid bitumen also carries freezing risk.

• Restart cycle analysisDifferences between controlled and uncontrolled shutdown restarts

  The nature of the shutdown determines recovery time and cost

  A controlled shutdown usually takes 2-4 months to restart; an uncontrolled shutdown caused by drone attacks and potline freezing may require 6-8 months, and restart can only begin once the situation stabilizes.

Asset mapping & comparison

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

• GCC aluminum smelters

  Directly affected assets

  Strengths

  They have a local natural gas energy base and a relatively complete foundation for the aluminum value chain, with strong expansion intentions before the conflict.

  Weaknesses

  They are highly dependent on imported alumina, petroleum coke, bitumen, and export logistics, making them clearly vulnerable once the Strait of Hormuz is disrupted.

  Comparison

  Compared with steel, aluminum smelting is more sensitive to continuous electricity and potline temperature, so shutdowns are slower and more expensive to restart.

  Risks

  Gas and power interruptions, inability to import raw materials, unsustainable alternative routes, potline freezing, and long-term output reductions.

• EGA Al Taweelah / EGA Jebel Ali / Sohar smelter

  Assets that benefit relatively more from the Sohar alternative route

  Strengths

  The Sohar port route can supply key inputs such as alumina, petroleum coke, bitumen, and anodes relatively completely.

  Weaknesses

  They still face port, trucking, border, and logistics-priority constraints.

  Comparison

  Compared with Alba, Ma'aden, and Qatalum, their alternative routes are shorter and more feasible.

  Risks

  If regional logistics remain tight or road capacity is insufficient, costs may still rise and supply may remain unstable.

• Alba / Ma'aden / Qatalum

  Assets with limited alternative supply routes

  Strengths

  They are major regional aluminum producers with established production bases.

  Weaknesses

  Supply via the Red Sea and Saudi inland over about 1,500 km is difficult to sustain; long-distance transport of liquid bitumen also faces freezing problems.

  Comparison

  Compared with smelters in the UAE and Oman, they rely more heavily on the Red Sea and long-haul overland transport.

  Risks

  If Bab el-Mandeb or the Red Sea is disrupted, the risk of further production cuts increases.

• Steel producers in GCC

  Affected industry with similar but lower sensitivity

  Strengths

  They also have a regional industrial base.

  Weaknesses

  Imported iron ore faces logistics pressure similar to aluminum's alternative-route constraints.

  Comparison

  Because they do not face the risk of potline freezing, their operational sensitivity is lower than aluminum smelting.

  Risks

  Rising logistics costs, disrupted raw material imports, and lower production efficiency.

• Petrochemicals and fertilizers

  Industries affected by both energy and logistics

  Strengths

  The region has resource bases such as oil and gas and phosphate.

  Weaknesses

  Higher oil and gas costs and export/logistics disruptions will amplify cost pressure.

  Comparison

  The report believes petrochemicals and fertilizers could be affected even more significantly.

  Risks

  Rising energy prices, export bottlenecks, and broader global inflation pressure.

Key data

• GCC share of aluminum supply7% of global supply; 18% of supply outside ChinaFrom the expert call remarks.
• Pre-conflict annualized output6.0mntScenario baseline in the chart.
• Current annualized output5.2mntAfter recent drone attacks and production cuts.
• Current annualized production cutabout 800ktIncluding about 550kt of voluntary shutdowns and additional impacts after drone attacks.
• Output under a 4-8 week crisis scenario4.6mntIf Alba and Qatalum cut production further.
• Output under prolonged disruption3.5-4.0mntPotential stable output if logistics constraints persist.
• Additional trucking costat least US$200-300/tExperts estimate this can be absorbed by current profit levels.
• Controlled shutdown restart cycle2-4 monthsApplies to voluntary cut scenarios such as Qatalum and Alba.
• Uncontrolled shutdown restart cycle6-8 monthsApplies to damage scenarios such as potline freezing.
• Combined major Middle East smelting capacity7.1mntThe report table lists the combined capacity of major Middle East aluminum smelters.

Impact & implications

If the conflict and logistics constraints continue, a contraction in Middle East aluminum supply could support aluminum prices and add to global inflation pressure, while weakening the business model in which GCC countries rely on imported raw materials and local energy to develop a full aluminum value chain. New aluminum projects and expansion plans in the region may be delayed, and companies are more likely to prioritize logistics recovery and production stability. In the long run, GCC aluminum producers may place greater emphasis on overseas investments and supply security for end markets. Steel, fertilizers, and petrochemicals, which also depend on imported raw materials or energy costs, face similar pressure.

Risks

• An impassable Strait of Hormuz disrupts trade flows of alumina, petroleum coke, bitumen, and aluminum metal.
• Further attacks on gas facilities, refineries, or pipelines could trigger additional voluntary production cuts.
• Alternative routes via Sohar, the Red Sea, and Saudi inland are constrained by port capacity, trucking, road access, border crossings, and cargo prioritization.
• Long-distance trucking of liquid bitumen may freeze, forcing smelters to import finished anodes instead.
• Uncontrolled shutdowns may cause potline freezing and extend restart cycles to 6-8 months.
• Security risks in Bab el-Mandeb or the Red Sea could further weaken the supply feasibility of Alba, Ma'aden, and Qatalum.
• Long-term geopolitical risk may delay GCC aluminum expansion and greenfield projects involving Chinese investment.

What to watch

• Navigability and security conditions in the Strait of Hormuz and the Red Sea/Bab el-Mandeb.
• Actual production cut announcements and restart plans from Alba, Qatalum, EGA, Ma'aden, and Sohar Aluminum.
• Whether GCC gas supply, power facilities, refineries, and pipelines suffer further attacks.
• Trucking capacity, border access, and logistics costs at Sohar port, Red Sea ports, and Saudi inland roads.
• Whether key raw materials such as alumina, petroleum coke, bitumen, and finished anodes can continue to be supplied.
• Aluminum prices and the ability of US$200-300/t of additional logistics costs to be absorbed by smelter margins.
• GCC aluminum expansion projects, overseas investment plans, and strategic adjustments by companies such as EGA and Alba.