Why Hindalco has halted sales of its aluminium products
What's the story
Hindalco Industries Ltd, one of India's leading aluminium manufacturers, has notified customers that it is suspending sales of its extruded aluminium products. The decision comes as a major blow to the global supply chain for this metal and highlights the far-reaching impact of the ongoing Iran war. The conflict has already led some West Asian aluminium smelters to suspend their sales due to disrupted shipping through the Strait of Hormuz.
Contractual measures
Force majeure invoked in contracts
As the supply chain disruptions worsen, Hindalco has invoked force majeure clauses in its contracts with buyers of extruded aluminium products. These products are widely used in industries such as automotive and construction. Despite the suspension, it's important to note that Hindalco's smelters in India continue to operate normally. The company sources commodity-grade metal from these facilities for its extruded product manufacturing process.
Market impact
Severe shortages expected
The global aluminium market is already feeling the heat from the Iran war, with analysts and traders warning of severe shortages if shipping through the Strait of Hormuz doesn't resume soon. Some West Asian producers have already declared force majeure due to disrupted outbound shipments. There are expectations that these producers may have to start cutting output unless they can bring in additional raw materials through this vital waterway.
Price escalation
aluminium prices surge
The ongoing conflict has also led to a spike in aluminium prices. Futures contracts on the London Metal Exchange have hit their highest level in nearly four years. In physical markets across Asia and the US, manufacturers are paying higher premiums over the LME benchmark to secure spot supplies on short notice. The traders are also rushing to withdraw stockpiles from the London Metal Exchange due to these market changes.