Aluminum "black hole" arrives! JPMorgan warns: The largest supply gap in 25 years is now inevitable, targeting a price of $4,000.

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The aluminum market is facing the most severe supply crisis in decades.

J.P. Morgan has issued a warning that the global aluminum market has entered what it calls a supply "black hole." Even if the Middle East conflict ends immediately, it will not prevent this deep and lasting supply shortage.

This week, J.P. Morgan warned its clients that the aluminum market is experiencing its largest supply gap in over twenty-five years, and predicts that aluminum prices may break through $4,000 per ton. Previously, direct strikes by Iran on two key smelters in Abu Dhabi and Bahrain caused irreversible capacity losses, pushing London aluminum prices above $3,600 per ton—a four-year high.

This supply shock is particularly harsh for Western manufacturers. China and Russia, as major alternative sources of supply, have been effectively excluded from the U.S. and European markets due to sanctions and trade tariffs, and some downstream buyers may face shortages that are simply unsolvable.

Supply "black hole" becomes reality, J.P. Morgan's warning realized

J.P. Morgan has long warned that the aluminum industry is heading towards a "metaphorical point of no return"—even if logistics through the Strait of Hormuz resume, the global aluminum market will still face severe and prolonged supply disruptions. This week, the bank officially informed clients that the market has entered this "black hole."

Since the outbreak of the Middle East conflict, the aluminum industry has repeatedly warned that if the flow of raw materials into the region via the Strait of Hormuz is blocked for more than a few weeks, smelters in the Middle East will be forced to cut production. Some reductions have already occurred, and last month's direct strikes by Iran on two key smelters in Abu Dhabi and Bahrain drastically expanded the supply losses and caused permanent capacity losses.

J.P. Morgan predicts aluminum prices may break through $4,000 per ton. The all-time high for aluminum was $4,073.50 per ton, set in 2022—when the Ukraine war triggered a similarly deep supply shock.

Smelter shutdowns hard to reverse, restart cycle at least one year

The severity of this crisis is partly due to the structural features of the aluminum smelting industry. There is ample supply of aluminum ore, and the construction cost of smelters is relatively low, but once shut down, restarting is extremely costly and technically challenging.

For this reason, even with rising prices and expectations that the conflict may ease, it will take at least a year—or even longer—for Middle Eastern aluminum supply to fully recover. In history, this feature has led to another distortion: even when prices are low, smelters are reluctant to cut production, which worsens supply-demand imbalances. Once production halts, capacity is often lost permanently.

Previously, analysts questioned whether the short-term supply disruptions caused by a Hormuz blockade would be offset by global economic slowdown from the war reducing demand. But Iran's direct strikes on smelters have completely changed this logic.

Western manufacturers hit first and hardest, alternatives limited

This supply shock is particularly severe for Western manufacturers. Although China and Russia are the world’s main suppliers of aluminum, both have been effectively cut off from the U.S. and European markets by sanctions and tariffs.

Factories are paying higher prices to find alternative sources, but for some downstream products specialized in Middle Eastern smelters, the supply gap may simply be impossible to fill. This means the impact of this supply crisis will not be limited to prices but will directly hit the production chains of Western manufacturing.

The aluminum market has long been mired in a supply glut, but now, in just a matter of weeks, it has plunged straight into the "black hole" described by J.P. Morgan. For investors, the $4,000 price target is no longer a distant forecast but a rapidly approaching reality.

Risk Warning and DisclaimerThe market carries risks, and investment should be done with caution. This article does not constitute personal investment advice, nor does it take into account the special investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific situation. Investing based on this information is at your own risk. ```