The Strait of Hormuz blockade has sparked concerns about aluminum supply in Japan

The military conflict between the US, Israel, and Iran, which has effectively blocked the Strait of Hormuz, is casting a shadow over the aluminum supply chain. The Middle East, with its cheap electricity, is a thriving center for aluminum ingot production, accounting for 20% of global output outside of China. Large Japanese companies that use aluminum ingots will likely procure alternatives, potentially impacting beverage cans and automobiles.

Aluminum is used not only in beverage cans and electric vehicles (EVs), but also extensively in building window frames and Shinkansen bullet train bodies. Aluminum is extracted from bauxite and electrolyzed to produce ingots. Aluminum ingots are often called “electric cans” due to their high electricity consumption, and the Middle East, with its cheap electricity, is increasingly taking a share.

China accounts for 60% of global aluminum ingot production, but most is used for domestic consumption. The Middle East’s share of production outside of China has increased to 20%. However, the Hormuz blockade has affected the procurement of raw materials and the shipment of finished products. On March 15, Aluminium Bahrain, an aluminum ingot manufacturer, suspended some production lines.

The Japan Aluminium Industry Association (Chuo-ku, Tokyo) stated at a regular press conference on March 26th that “member companies are discussing changes to the shipping routes and procurement sources for aluminum ingots.” Approximately 20% of Japan’s primary aluminum imports by 2025 will come from the Middle East, with the United Arab Emirates (UAE, accounting for 13% of Japan’s imports) being a major producer near the Persian Gulf.

Japan used to produce aluminum ingots, but now relies entirely on imports. Large Japanese companies are beginning to procure alternative products. Resonac Holdings explained, “The suppliers are dispersed, so if sourcing from the Middle East is difficult, we can source from other places, offering high flexibility.” They have already begun shifting towards Australia and South Africa.

The situation is different for small and medium-sized enterprises (SMEs) in Japan. Depending on the application, aluminum is combined with other components to form alloys. Large companies have the capacity to manufacture alloys themselves, but SMEs purchase alloyed products from smelters in the Middle East, making it difficult to immediately switch suppliers.

What about inventory levels? Marubeni data shows that as of the end of February, port inventories of aluminum ingots in Japan (Yokohama, Nagoya, Osaka) totaled 302,300 tons. Market insiders stated, “Excluding recycled aluminum, considering consumption levels, this should be equivalent to 2-3 months’ worth of usage.”

Aluminum in transit at sea also counts as inventory. Aluminum ships bound for Japan before the Strait of Hormuz was closed “will arrive in Japan in about 3 weeks to 1 month” (Japanese trading companies). Individual manufacturers also have their own inventory.

While it won’t immediately impact downstream industries in Japan, concerns are growing among companies that use aluminum in their final products. TOPY INDUSTRIES, a manufacturer of aluminum wheels, stated, “We haven’t yet grasped the relevant impact,” but added, “The impact on inventory is worrying, and we will study risk mitigation measures.”

Regarding the impact on automobile production, Kenji Kanai, senior analyst at Tokai Tokyo Intelligence Lab, pointed out, “The effects, including inventory at parts companies and the supply chain, will become apparent in 1-2 months.”

In addition to aluminum, Tatsuo Fukushima, chairman of the Distribution Committee of the Japan Cement Association (Tokyo Chuo Ward), stated at a regular press conference on March 26th, “It may affect cement transportation.” Limestone, the main raw material for cement, can be sourced domestically in Japan, but the shortage of crude oil will affect the fuel supply for transport ships.