The supply shock caused by the Iran war is restarting old Western aluminum smelters. In the United States, Magnitude 7 Metals is restarting the New Madrid smelter in Missouri. Across the Atlantic, Norwegian company Hydro announced a partial restart of the Slovaco joint venture smelter in Slovakia.

Both plants had been completely idle for several years due to low aluminum prices and high energy costs following the Russian invasion of Ukraine in 2022.

Their restart carries significant political implications for Washington and Brussels, which are striving to reduce dependence on imports of this metal used widely in diverse industrial sectors.

Neither plant will drastically change the global market, but the return of these idled facilities shows how much the aluminum market has changed since the outbreak of hostilities in the Middle East in February.

Back again

The New Madrid plant, with an annual capacity of 263,000 metric tons, started operations in 1971 and was originally owned by Canada's Noranda.

Both plants have new infrastructure; each has an annual capacity of 263,000 metric tons and began operations in 1971. After being idle in 2016, privately-owned Magnitude 7 Metals restarted it in 2018, then suddenly shut it again in early 2024. The smelter gained a bad reputation as the most polluting plant in the country in 2019.

The plan is to restart one production line with a capacity of 75,000 tons per year by the end of the year, with the possibility of further increasing operations in 2027.

Undoubtedly, former President Donald Trump's decision to double tariffs on imports to 50% last year contributed to reviving the New Madrid smelter.

The delivery premium to the United States consequently rose to $2,375 per ton above the London Metal Exchange price. However, the rise in the price of primary aluminum on the LME from $2,200 per ton at the start of 2024 to $3,165 per ton today is a crucial factor for the revival of the New Madrid plant, even after the recent—and possibly premature—retreat from the war premium.

Slovakia's revival

The Slovaco plant, owned 55.3% by Hydro and 44.7% by Penta Investments, which focuses on Central Europe, plans to restart 75,000 tons of its capacity.

This decision is based on a new power supply agreement with state-owned hydropower company Vodohospodarska Vystavba and a compensation scheme for indirect carbon costs under the EU Emissions Trading System. This latter scheme is still subject to European Commission approval. Europe has lost about half of its primary aluminum smelting capacity since 2022, making the restart a big win for both Slovakia and Europe.

However, high energy costs and EU emission regulations still create a very difficult operating environment for aluminum smelters, which consume enormous amounts of energy. Hydro noted that restarting the remaining 100,000 tons of capacity at Slovaco 'will depend on the post-2030 ETS framework conditions and additional power contracts.'

A golden opportunity

The war in Iran has reduced aluminum production in Gulf states by 2 million tons per year, due to direct missile strikes on two smelters, as well as logistical constraints faced by other plants. With Chinese production nearing the government's capacity cap of 45 million tons per year, a market characterized by years of oversupply has turned into a rapid and worrying deficit.

LME inventories have been tapped to fill the resulting supply chain gaps, with total stocks, including off-warrant metal, falling below 400,000 tons.

The war has exacerbated import dependence in both the US and Europe, creating an opportunity to restart idled capacity. The question remains how long this opportunity will last. Other parts of the global supply chain are also reacting.

China has increased its exports of semi-finished products, such as rods, wires, and foil, to capitalize on the metal shortage in the West. Exports of these products fell by 9.4% last year compared to 2024, but grew by 10% in the first five months of this year. May exports reached 595,000 tons, the highest monthly figure since November 2024.

Chinese investors are also heavily investing in building new smelting capacity in Indonesia. The new 'Guan' project, with a capacity of 270,000 tons per year, reached full capacity in January, according to Macquarie Bank. The Adaro joint venture, with a capacity of 500,000 tons per year, exported its first shipments last month, according to trade data platform Export Genius.

Adaro aims to raise its capacity to 1.5 million tons per year, as part of a broader plan to increase national output, which could see more than 10 million tons of new annual capacity added in the coming years.

This puts the restart of the New Madrid and Slovakia production lines combined, with a capacity of 150,000 tons per year, into perspective, regardless of their political significance. Much now depends on what happens next in the Middle East. The price of aluminum on the LME has fallen.

Tensions have eased significantly with signs of de-escalation and hopes for a return to normalcy at the affected Gulf smelters. This optimism appears amidst renewed US bombing campaigns and Iranian retaliation. The opportunity to restart more smelters remains for now.

Economic columnist at Reuters