Integrated Annual Report 2024 SECTION 3 • CHARTING THE PATHWAY TOWARDS EXCELLENCE 23 The Market We Operate In Outlook for 2025 Persistent geopolitical tensions and global conflicts continue to pose significant risks to the stability of supply chains, affecting manufacturers’ ability to secure essential inputs and access to export markets. These tensions, alongside rising protectionist policies and trade restrictions, are exacerbating the risks of material shortages and escalating operational costs for the aluminium industry. The Red Sea crisis is a critical concern, with ongoing conflict in the Middle East causing continued disruption to maritime activity. The uncertainty surrounding this situation means delays in shipments may persist, putting further strain on global supply chains and forcing businesses to rely on more expensive and time-consuming alternative routes. Indonesia’s ban on bauxite exports which commenced from June 2023, coupled with export challenges in Guinea, have contributed to a decline in global alumina supply, increasing the risk for a compounded shortage. Although alumina supply is expected to improve in 2025, such protectionist actions highlight the importance of securing reliable alumina sources. Our commitment to expanding upstream operations is essential to ensuring the long-term sustainability of our business. Additionally, the increasing frequency of extreme weather events presents an added challenge to the global alumina supply, prompting us to stay vigilant in managing resources and adjusting business operations’ strategies accordingly. Supply Chain Global Megatrend Supply chains worldwide continue to face significant instability and disruptions, which have affected economies and industries globally in recent years. While the impact of the COVID-19 pandemic on supply chains continues to ease in 2024, new challenges have emerged, primarily driven by geopolitical tensions, conflicts, and extreme weather events. A major issue arose with the Red Sea shipping crisis, which led to a sharp decline in the number of ships transiting through the Suez Canal. Average daily transits fell by 55% compared to 2023, resulting from shifts towards the longer and more time-consuming alternative route via the Cape of Good Hope2. This change added at least ten (10) days to delivery times on average, exacerbating pressures on companies already dealing with limited inventories3. Meanwhile, on the other side of the world, the Panama Canal faced its worst drought in recorded history, prompting authorities to impose strict restrictions that drastically reduced the number of ship crossings. These limitations added an average of six (6) days to transit times, further disrupting global trade4. In addition to delays, the crises at two (2) of the world’s most important maritime chokepoints led to heightened port congestion, increased shipping costs, and a rise in GHG emissions from longer transport routes. In parallel, bauxite supply disruptions had a significant impact on alumina availability. Guinea, responsible for around 32% of global bauxite supply, suffered major flooding in early 2024, halting bauxite shipments. This was compounded by export restrictions in the later part of the year. A stranded vessel near Juruti Port in Brazil also caused disruptions, halting bauxite shipments from the area5,6,7. Further supply constraints were caused by refinery closures and force majeure events in Australia. These disruptions led to record-high alumina prices in 2024, which have driven up aluminium production costs, marginalised profitability for smelters, and forced some producers to reduce output8. Ongoing uncertainties surrounding government policy also weighed heavily on global supply chains. The ongoing Russian-Ukraine conflict continued to disrupt the flow of critical raw materials in 2024, exacerbated by increased sanctions on Russia and the introduction of new European Union (“EU”) export regulations. Impact on Business Operations • Disruptions in the supply of raw materials could lead to increased production costs, affecting overall business operations and profitability. • Logistics challenges, both locally and globally, may cause delays in the delivery of raw materials and products, potentially leading to customer dissatisfaction, decreased loyalty, and reputation damage. • Increased freight demand due to logistics disruptions could result in shortages, higher freight, insurance and warehouse storage costs, and extended turnover days, impacting operating costs and profitability.
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