How West Asia conflict has turned Diet Coke into a rare commodity

Hormuz disruption has hit aluminium supply, triggering Diet Coke shortages in India as bars host themed parties and cola raffles amid a brutal heatwave with temperatures nearing 49 degrees Celsius

By David Fickling

 

Geopolitics is currently making it harder for India’s 1.4 billion people to cool off in the punishing summer heat. Things are about to get a whole lot worse. 

The problem right now is with Diet Coke. The closure of the Strait of Hormuz has disrupted exports of aluminum from smelters in the Persian Gulf, which account for about a fifth of supplies outside of China. That’s hit beverage manufacturers in India, where the soda is only available in metal cans, in turn sparking a burst of end-times hedonism. With the mercury nearing 49 degrees Celsius (120 degrees Fahrenheit), restaurants and bars have hosted “Diet Coke Parties,” where entrants pay up to $16 a ticket to get access to jalapeno-spiked cola cocktails, T-shirt painting, and raffles with scarce cans of the drink as prizes.

   

Beneath all the hilarity, there’s a serious issue. The most concerted global effort to insulate households and businesses from the chaos spiraling out of war in West Asia is a mass drive for clean electrical energy.

 

Generation from wind and solar overtook gas for the first time last month, according to Ember, a transition-focused thinktank. Chinese exports of solar panels, electric vehicles, and batteries have jumped 31 per cent, 75 per cent, and 45 per cent respectively in value so far this year as consumers around the world sought out power products that don’t depend on oil and gas. 

 

Almost every one of those electrical devices, however, depends on the same aluminum that’s disappearing from the refrigerators of Indian supermarkets and neighborhood kirana stores.

 

It’s common to think of copper as the archetypal electrical metal, but there’s a decent argument that it’s aluminum instead. While copper wires are preferred inside electrical devices because of their higher conductivity, aluminum is cheaper. That means it’s used more for long-distance transmission cables, and increasingly even for complex pieces of infrastructure like transformers and switchgear. Global power networks consume about twice as much aluminum as copper, according to Thunder Said Energy, a consultancy.

 

That’s the place where the energy transition is most at risk. The shift to clean power could be put in jeopardy because of the slow buildout of grids, according to Fatih Birol, the executive director of the International Energy Agency. Some 1,700 gigawatts of clean generation is currently completed but stuck in queues waiting for a connection, he added last year. That useless capacity is equivalent to about a third of all the renewables installed to date.

 

Clearing that backlog depends on access to aluminum. High-voltage transmission lines can easily cost more than $500,000 per mile ($310,000 per kilometer) on conducting wire, making up more than 10 per cent of the expense of a new project and 80 per cent of some upgrades. Grid managers are already struggling with the headlong expansion of power-hungry AI, with $653 billion expected to be spent on data centers this year alone. Rising costs for aluminum make all of that worse.

 

Primary metal traded on the London Metal Exchange has already increased by half over the past year, to around $3,637 a metric ton. Conditions in the aluminum market are the most bullish in 50 years and the metal could rise a further 50 per cent next year, Citigroup Inc. wrote recently. 

 

Such forecasts don’t look excessive. Even with an opening of the Strait, the Gulf’s aluminum production won’t quickly return to normal. Emirates Global Aluminium PJSC, the largest in the region, sustained hits from drones and missiles that appear to have frozen some of the thousands of electrolytic cells where molten metal is smelted. That’s a disastrous situation, requiring parts of the production line to be rebuilt almost from scratch. The company expects a restart to take up to 12 months. 

 

Normally, China’s amply-supplied metal sector could be expected to come to the rescue. That’s less likely this time, though. China produces about 60 per cent of the world’s aluminum but consumes almost everything it makes. It has its own renewables and grid buildout to worry about, and is also in the middle of moving millions of tons of smelting capacity to renewable-powered locations deep inland. That limits its ability to rebalance the world market through an export surge.

 

Even Indonesia, which had been expected to loosen the market by adding a Gulf-sized 7.6 million tons of smelting capacity over the next few years, is looking more dicey now. The government announced plans this week for sovereign wealth fund Danantara to take control of palm oil, coal and nickel exports. Such policies could put off the foreign investment needed to support the new plants. President Prabowo Subianto’s more nationalistic stance could also reserve metal for use in domestic manufacturing, starving the global market. 

 

All of that will put sand in the gears of the energy transition, just when we need it to be speeding up. If you want to survive the brutal heat of the coming few summers, don’t get too dependent on steady grid power for your air conditioner. A cooling can of Diet Coke might be the better way — if you could just get your hands on one.

  (Disclaimer: This is a Bloomberg Opinion piece, and these are the personal opinions of the writer. They do not reflect the views of www.business-standard.com or the Business Standard newspaper)