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What impact has the Red Sea shipping chaos had on the European metals market?

It would be something of an understatement to say that recent events in the Red Sea have caused jitters across the world’s supply chains, and fears of widespread disruption to global trade.

As we type this, news has been filtering through of the US and UK navies combining to repel the largest attack yet by Yemen’s Houthi rebels on Red Sea shipping overnight on 9th January. In the wake of this most recent event, the US military stated that the Iran-backed group launched at least 21 drones and missiles over the course of one night.

Such recent developments continue the pattern of the Houthis targeting vessels in response to the war in the Gaza Strip. The rebels have claimed – often incorrectly – that the ships they have targeted have been linked to Israel.

With the three-month-long war between Israel and Hamas in Gaza showing no sign of coming to an imminent end, US Central Command stated that the latest attack was the 26th by the Houthis on commercial shipping lanes in the Red Sea since 19th November.

Clearly, there are concerns that such risks in the region will persist for some time. But what implications have these attacks on Red Sea vessels had so far for the European metals market, and what could be the prospects going forward?

Aluminium premiums in Europe climbed over the Christmas period 

In our capacity as extruded aluminium products suppliers here at MCA, we naturally take great interest in the data that is emerging in relation to aluminium prices on our own continent.

Four of the five largest container shipping companies promptly announced they would take the much longer route around the Cape of Good Hope adding 10-14 days to the voyage time and incurring significantly higher bunker fees. As a result, all the shipping lines have increased rates with surcharges on those shipments already on the water in the region of USD 500 per 20ft container and dramatically higher freight rates for any new shipments, both out of Asia to Europe and for those from Europe heading back to Asia.

Sure enough, aluminium premiums were on the up over the two weeks to 9th January.

The LME reported the aluminium physical delivery premium, in-whs dp Rotterdam at $215 per tonne on 9th January. Although this was the same reading as had been seen the previous week, it was $25 higher than mid-December.

The premium increase was supported by a significant rise in spot liquidity ahead of the year-end, with Fastmarkets noting that multiple transactions were reported at $200 per tonne and above.

The disruption has had an even more significant impact on the aluminium semi-finished metal supply chain with distributors and end users reviewing their inventory levels and placing new orders in the expectation of delivery delays over the months ahead. Semi-finished metal premiums have firmed modestly so far as buyers initially turn to near shore European suppliers to bolster supplies, but if European mills lead times move out in response to the increased business, then conversion premiums will rise and consumers can expect higher prices as the quarter unfolds.

Anxiety persists about the possible impact in months to come 

With the Suez Canal handling about 12% of global trade and many more maritime carriers opting to avoid the Red Sea in light of the vessel attacks, this is a “live” and evolving situation that will be closely watched by extruded aluminium products suppliers in Europe and well beyond. Here at MCA UK, we will certainly be one of those suppliers that will be alert to the latest developments. With extensive stocks MCA UK is able to meet stock outs and short-term requirements while delayed shipments take some time to arrive.

To find out more about how our team can assist with your needs in relation to aluminium rolled and extruded products in the meantime, please don’t hesitate to contact us.

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