Aluminium prices have reached their highest level in more than four years, hitting $3,707.50 on Tuesday before settling at $3,671 on Friday, up 0.3%, as reported by The Economic Times. The premium for near-term LME aluminium contracts over the three-month benchmark hit $97 per metric ton on Friday, the highest in 19 years, reflecting the severity of the supply disruption. Benchmark LME aluminium prices are up 22% so far this year, with the dramatic price surge driven by the Iran war's impact on Middle East production and shipping routes. The Iran conflict has curtailed most shipping through the Strait of Hormuz, a key route for Gulf producers to export aluminium and import raw materials, creating severe logistical bottlenecks for the region's aluminium supply chain.
The global aluminium market continues to face severe disruptions as the Iran conflict intensifies with two regional smelters hit by Iranian strikes in late March, according to The Economic Times. The Gulf accounts for nearly 9% of global aluminium smelting capacity, making any disruption there a major threat to global supply chains. Primary aluminium production in the Gulf region declined sharply by 35% year-on-year in April to 330,000 metric tonnes, marking the weakest output level in more than a decade, according to the International Aluminium Institute. Missile strikes have damaged key aluminium smelters in the Gulf, with Emirates Global Aluminium's Al Taweelah facility expected to require nearly a year for repairs, while Qatar-based Qatalum has reportedly reduced production capacity. The continued disruption around the Strait of Hormuz has created severe logistical bottlenecks for producers still operating in the region, with any prolonged closure or military escalation potentially severely limiting Gulf producers' ability to maintain operations or export supply.
The aluminium market faces an unprecedented inventory crisis with available LME aluminium stocks falling to a one-year low of 254,625 tons after 5,000 tons were cancelled at the South Korean port of Gwangyang, as reported by The Economic Times. The squeeze reflects a 39% drop in available aluminium stocks in LME-registered warehouses since the conflict began in late February. LME registered stocks have fallen by a third to 339,475 tons since the start of the year, with the last couple of weeks seeing almost 68,000 tons cancelled in preparation for physical load-out. The market has moved into strong backwardation, meaning buyers are willing to pay significantly more for immediate supply than for future deliveries, typically viewed as a sign of acute physical tightness and supply stress. Large quantities are now being withdrawn from exchange storage for immediate delivery, signaling growing fears over future shortages.
The aluminium market faces additional complexity with Russian metal accounting for 72% of available LME stocks at the end of April, creating supply chain challenges for Western buyers, according to The Economic Times. Traders say Gwangyang mainly stores Russian-origin aluminium, with many Western buyers avoiding Russian aluminium in recent years because of self-sanctioning or sanctions linked to Russia's war in Ukraine. A further 108,263 tons of aluminium sit off-warrant, mostly in Asia, providing some buffer but highlighting the concentration risk in Russian supply. The combination of Gulf production losses, shipping disruptions, sanctions on Russian metal, and high energy costs has fundamentally altered the market balance, with the aluminium market entering a highly dangerous phase where physical shortages are becoming more important than headline commodity prices.
Looking ahead, the aluminium market is expected to remain structurally tight with demand growth continuing due to the global transition towards clean energy and electrification. While China has increased aluminium production in response to the supply shock, analysts believe Beijing has limited room to expand output much further, as Chinese smelters are already operating close to government's official production capacity limits. Several major institutions maintained bullish long-term price forecasts, with CRU and Bank of America both expecting aluminium prices to remain above $4,000 per metric tonne during the coming quarters due to persistent supply deficits and tightening inventories. Citi also projected global inventories could fall to historically low levels over the next six to twelve months, with the market expected to remain in a substantial deficit despite slower demand growth. The current crisis represents a fundamental shift in aluminium market dynamics, where geopolitical tensions, sanctions regimes, and production constraints are creating unprecedented supply-demand imbalances.
