Aluminum and steel producers are now fair game for air strikes

Vital industrial infrastructure in the region is now in the line of fire, with steel production facilities in the UAE, Bahrain, and Iran struck over the weekend. Iran hit Emirates Global Aluminum’s (EGA) Al Taweelah plant in Khalifa Economic Zones Abu Dhabi (Kezad) and Aluminium Bahrain’s (Alba) main smelter in retaliatory strikes after two major Iranian steel production complexes in Asfahan and Khuzestan were struck on Friday, killing at least 2 and wounding several others.

“These are two of the biggest regional players, and any hit to their production and supply infrastructure naturally disrupts the flow of metals that several global industries rely on,” dry bulk shipping consultancy Bharat Maritime told EnterpriseAM in a statement.

The disruption is likely to be prolonged, as damage to key facilities means it’ll take a while before production can resume, Bloomberg reports. Bahraini iron pellet and structural steel producer Foulath Holding announced force majeure on Saturday, affecting certain group operations as a precautionary measure in response to regional developments.

“A significant premium on aluminium prices globally” is likely, Bharat Maritime said — and analysts had previously told us that finding alternative producers quickly will be tricky. Aerospace, electronics, and construction sectors in Japan, the US, and the EU are expected to be especially hit, with each importing some 19-25% of their primary aluminum from the GCC. Around 9% of the world’s total aluminum supply comes from the region.

Meanwhile, China could be impacted by halts in Iran’s steel production: Iran is the world’s largest producer of direct reduced iron, churning out some 34.1 mn tons of the essential industrial material — almost a third of the world’s capacity, according to a report (pdf) by the US-based industry leader Midrex. While most of the country’s production is for domestic use, Iran is reportedly a big exporter of steel and Iron products to China, but how badly China will be impacted depends on the volume of Iranian exports — and there is no available verifiable data on that.

The attacks are more bad news for already battered global industrial supply chains. It expands damage to aluminum production and adds steel supply chains to the list of the war’s casualties.

Houthis enter the chat

Iran pulls an ace out of its sleeve: Yemen’s Houthi militia has officially joined the war after sitting on the sidelines for almost a month since the war started. The group fired ballistic missiles at Israel on Saturday and vowed to keep up attacks as long as US-Israeli strikes on Iran and Lebanon’s Hezbollah continue.

IN CONTEXT- The Houthi’s entry in the war coincided with the US sending more troops to the region in preparation for possible ground operations in Iran, Reuters reported.

Could the Houthis' entrance into the war see vessels in the Bab Al Mandab Strait be targeted next? While Israel seems to be the sole target for now, policymakers will likely be concerned that the group will resume its attacks on passing vessels making their way to and from the Suez Canal. Even if maritime attacks do not materialize, the Houthi’s active involvement in the war will likely further ward off shipping lines from the region and push up war ins. premiums.

What will happen if the Houthis shut down Bab Al Mandab? Closing that strait would deal a big blow to Saudi Arabia’s efforts to reroute its oil volumes and some parts of the larger GCC trade through its western coasts. This will leave the Suez Canal as the only major way out for Saudi oil and GCC’s exports and the only way in for most GCC-bound trade, including essential products like food.