Aluminium prices are expected to remain elevated in the coming weeks after reaching a near four-year high amid supply disruptions as the regional war continues, according to analysts.
Prices on the London Metal Exchange rose to $3,544 a tonne on Monday, the highest since March 2022, as shipping through the Strait of Hormuz, a critical export corridor for Middle East aluminium producers, remained effectively closed.
Prices fell to $3,385 on Tuesday after US President Donald Trump said late on Monday that the war, which began on February 28 with US and Israeli strikes on Iran, may end “very soon”.
“Given the low level of stocks, limited idled capacity, which has viable ways to restart, supply disruption could lead to prices pushing towards $4,000 per tonne,” Ross Strachan, head of aluminium raw materials at commodities research firm CRU Group told The National.
Among industrial metals, aluminium will see the largest gains from disruptions in the region, BMI, a unit of Fitch Group, said in a note. “Prices are likely to stay elevated in the coming weeks,” it said.
“With the market already expected to run a deficit in 2026, a more prolonged, large-scale disruption could drive prices as high as $3,700 per tonne.”
Gulf countries account for about 8 per cent of global primary aluminium production, according to the International Aluminium Institute, with most of it exported into international markets through the Strait of Hormuz. Key players include Emirates Global Aluminium in the UAE, Aluminium Bahrain (Alba), Ma'aden Aluminium in Saudi Arabia, Qatalum in Qatar, and Sohar Aluminium in Oman.
The conflict in the Middle East and the effective closure of the Strait of Hormuz are threatening aluminium supplies, Carsten Menke, head of next generation research at Julius Baer said in a note.
While Iran has carried out retaliatory strikes across the Gulf states, claiming it is attacking US bases, some energy infrastructure sites have also been hit, leading to widespread disruption.
Bahrain's Alba has declared force majeure on its deliveries due to transit issues through the Strait of Hormuz. Qatar’s Qatalum announced a controlled production shutdown on March 3 due to natural gas shortages.
“While no attack-related damage has been reported thus far, two of the region’s largest producers are defaulting on their delivery contracts. We acknowledge that prices could overshoot in the short term, but we see no lasting upside from current levels,” Mr Menke said.
Aluminium markets have previously experienced sharp price spikes during geopolitical disruptions, including in 2018 when US sanctions on Russian producer Rusal temporarily removed a large portion of global supply from international markets. That sent LME prices up about 30 per cent in April of that year, according to LME price data and reports from S&P Global Commodity Insights.
Alternative routes
Although Iran has not formally closed the Strait of Hormuz, traffic has effectively halted.
“The challenge for Middle Eastern producers is that the Strait of Hormuz is their only outlet as the region’s road and railway infrastructure is not sufficient to accommodate other types of transportation. This is not least because as the Strait of Hormuz is also needed to ship raw materials to the smelters,” Mr Menke told The National.
Most Gulf smelters rely on imported alumina, which arrives by sea through the Strait. Disruptions therefore threaten both exports of finished metal and the import of raw materials needed for production.
According to Mr Strachan, there are alternative shipping channels, such as the Red Sea, the Port of Jeddah, and the circumnavigation around the Cape of Good Hope in South Africa.
“However, these alternative routes are not immune to geopolitical volatility and face inherent risks of interception amid escalating conflicts,” he said. “Furthermore, since various smelters are located on the Gulf, trucking to the Red Sea port could be unsustainable due to the very long route.”
In the UAE, shorter alternative routes include the Gulf of Oman where there are two major Emirati ports in Khor Fakkan and Fujairah.
However, “the extended voyage durations required to deliver to Europe, Asia and North America will attract higher insurance costs and surging freight rates, ultimately compounding premiums”, Mr Strachan stressed.
“Beyond the immediate security risks, a major practical constraint is whether alternative hubs have the infrastructure and capacity to handle redirected shipping volumes.”
Impact on regional producers
Exports from the Gulf region represented about 21 per cent of total US primary aluminium imports last year, according to official US customs data.
The region also supplied 19 per cent of the EU's primary aluminium imports, with the majority delivered to Italy and the Netherlands, S&P Global said in a report.
Similarly, the Gulf accounted for about 25 per cent of Japan's total imports of primary aluminium last year. Other countries, including Mexico, South Korea, India, Thailand, Taiwan and the UK, also import large volumes of primary aluminium and semi-finished products from the Gulf, the report said.
Higher aluminium prices could ripple through industries that depend heavily on the metal, including automotive, aerospace, construction and packaging, potentially raising manufacturing costs if supply disruptions persist, according to S&P.
“Aluminium smelting is an energy-intensive process. The Gulf's access to abundant and relatively low-cost natural gas has been a crucial driver of the industry's growth and global competitiveness,” S&P explained.
For now, as long as producers in the Gulf still have raw materials on site, “they will try to keep smelters operating as shutting them down is both a lengthy and costly process”, Mr Menke told The National.
“Plus, restarting them is a time-consuming process as well. Our understanding is that raw materials on site should be sufficient to continue producing for around three to four weeks. Assuming that the Strait of Hormuz opens within that timespan, the impact on the producers and the aluminium market more broadly should be manageable,” he said.
But, if imports of raw materials are constrained for longer and production is curtailed as a result, “this would have a major impact on the aluminium market, given the size of the Middle Eastern aluminium industry”, he added.
The smelter in Saudi Arabia gets its alumina domestically and in turn that is supplied by domestic bauxite and hence is less likely to be affected, Mr Strachan said.
“A protracted conflict would have major implications for the entire supply chain as it will mean that sourcing bauxite to the refineries and alumina to smelters in the region would become immensely challenging (or even impossible) and in turn challenging for metal to flow to customers,” he added.
