WEST ASIA CONFLICT FUELS GLOBAL ALUMINIUM RALLY

The ongoing conflict in West Asia is creating unexpected winners in the global metals industry. As supply disruptions ripple through international aluminium markets, Indian primary aluminium producers are emerging as some of the biggest beneficiaries, supported by strong domestic resource linkages, low-cost operations and rising global demand. According to a recent assessment by Crisil Ratings, Indian aluminium manufacturers are poised to achieve their highest profitability levels in more than a decade during fiscal 2027. Elevated global prices, combined with relatively stable production costs, are expected to lift operating earnings to over $1,450 per tonne, creating a favourable environment for growth, investment and stronger balance sheets.

Supply Shock Drives Prices Higher

The sharp rise in aluminium prices stems from a widening global supply deficit triggered by production disruptions across the Gulf Cooperation Council (GCC) region, a major contributor to global aluminium output. The GCC accounted for 8.3% of global aluminium production in calendar year 2025. However, strikes on critical smelting infrastructure and gas supply shortages have disrupted nearly half of the region’s output. As a result, the global aluminium market is expected to face a deficit of 1.5–2.0 million tonnes this year, the largest shortfall seen in a decade. The impact on prices has been immediate. Since the conflict intensified in early 2026, aluminium traded on the London Metal Exchange (LME) has averaged above $3,500 per tonne, marking the highest levels recorded in ten years.

Disruption caused by the West Asia conflict is significant, considering the global supply deficit averaged below 0.5 MT over the last five years. With global smelting capacities operating above 90% utilisation and China’s primary output already near its 45 MT cap, there is limited room to offset the GCC shortfall. Even if the conflict is resolved in the next one to two quarters, the deficit is likely to keep prices elevated in the range of $3,200–3,300 per tonne through fiscal 2027. Ankit Hakhu, Director, Crisil Ratings


India’s Structural Cost Advantage

While aluminium prices are rising globally, Indian producers continue to enjoy one of the lowest production cost structures in the world. A key advantage comes from their high degree of backward integration. Most large producers operate captive coal-based power plants, alumina refineries and bauxite mines, allowing them to reduce exposure to volatile international energy and raw material markets. Power accounts for roughly 40–45% of aluminium production costs. Unlike many overseas smelters that rely heavily on natural gas, Indian producers depend largely on domestic coal supplies, which have remained relatively stable. Similarly, abundant domestic bauxite reserves and integrated alumina refining operations help meet 85–90% of raw material requirements internally. As a result, production costs are expected to remain largely stable at around $1,900–1,950 per tonne during the current fiscal year.

Margins Set for Record Levels

The combination of rising realizations and controlled costs is expected to translate into exceptional operating performance. Industry margins are projected to exceed $1,400–1,500 per tonne, significantly higher than the decade-long average of approximately $560 per tonne. Strong profitability is also expected to generate record operating cash flows and support healthy credit metrics across the sector.

The key advantage Indian producers hold in this milieu is their self-sufficiency in key raw material availability for primary aluminium production. Unlike GCC smelters, Indian players rely mainly on domestically sourced raw materials like coal and bauxite. Thus, a sharp increase in realizations will push operating margins of Indian primary aluminium producers above $1,400–1,500 per tonne this fiscal — well above the decadal average of about $560 per tonne. Ankush Tyagi, Director, Crisil Ratings

Demand Momentum Adds Further Support

The earnings windfall comes at a time when domestic producers have expanded capacities to meet growing demand from infrastructure, electrification and the electric vehicle ecosystem. India’s aluminium demand is expected to grow by 7–9% this fiscal, while new export opportunities are emerging in Europe, Japan and the United States as buyers seek alternatives to GCC-origin supplies. Despite recent capacity additions, utilisation levels are expected to remain healthy at 85–90%, supporting sustained earnings momentum. While a faster-than-expected recovery in GCC production remains a risk, the current market dynamics suggest Indian aluminium producers are entering one of the strongest profitability cycles in their history.