Oil Price Surge Drives Up Aluminium Costs as Middle East Crisis Bites

The recent surge in crude oil prices has significant implications for the aluminium industry. While oil price shocks are often associated with their impact on transportation, aviation, paints and chemicals, tyres, rubber, and fertiliser industries, the ripple effects on metallurgy are often overlooked.

In the case of aluminium production, the connection to oil is indirect but important. Petroleum coke, a byproduct of oil refining, is used in the smelting process as a key raw material for manufacturing carbon anodes. For every 5 barrels of heavy crude oil, 1 tonne of petroleum coke is produced.

The price of pet coke is directly related to the costs of crude oil. With global oil prices ranging between $84-90 per barrel, the cost of producing 1 tonne of petroleum coke would be around $420-450. This increase in pet coke prices affects anode production costs, with calcined petroleum coke accounting for 60-75% of anode composition.

The final consequence is the increased aluminium smelting cost. On average, anode cost contributes 10-15% to the total cost of primary aluminium production, which would translate to a $294-378 increase per tonne of aluminium. The recent Middle East crisis has pushed up global oil prices, with Brent crude estimated to reach $100 per barrel in the near term.