Carmakers Rush to Secure Aluminium as Middle East War Hits Supply

The ongoing Middle East war has led to a significant disruption in aluminium supply, causing prices to surge to a four-year high of ≈ $3,426/t. According to Citi, prices could reach $4,000/t if the disruption persists. This increase in aluminium prices is expected to have a negative impact on major car manufacturers, with a potential 1-2% near-term decline in their share prices.

The carmakers most exposed to the aluminium price surge are those that source ≥ 20% of their aluminium from the Gulf, such as Ford, Volkswagen, General Motors, Toyota, and Hyundai/Kia. These companies face higher material costs, tighter cash flow, and investor risk-aversion, which could lead to a 1-2% decline in their share prices.

However, companies that have already secured alternative aluminium supplies, such as Toyota, are expected to see a limited impact of ≤ 0.5% on their share prices. The market is pricing in a 3-5% earnings hit for the most exposed carmakers, which translates into a 1-3% short-term decline in their stock prices until the supply situation stabilizes or effective hedges are demonstrated.

Sources