Aluminum prices hit a 4-year high! Middle East conflict disrupts supply, analysts eye the $4,000 mark

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The Middle Eastern conflict is reshaping the global aluminum market landscape. The effective closure of the Strait of Hormuz has led to severe supply disruptions, making aluminum the strongest performer among industrial metals in this cycle, now approaching four-year highs.

Since the conflict erupted on February 28, the three-month aluminum price on the London Metal Exchange (LME) has surged by as much as 10%. As of Wednesday afternoon in London, it closed at around $3,370 per ton, up by about 8% compared to pre-conflict levels. The supply-side tension has been further heightened by an announcement from Alba, the world’s largest aluminum smelter, to cut production, intensifying market concerns about a global supply shortage.

CRU Group, a metals industry research institution, warns that if inventory levels continue to fall and Middle Eastern supply disruptions persist, aluminum prices may further climb to $4,000 per ton.

Dual shocks hit the supply side

The effective closure of the Strait of Hormuz is the core driving factor behind the current rise in aluminum prices. Although aluminum is the most abundant metal in the earth’s crust, it is indispensable in key sectors such as electronics, transportation, construction, photovoltaics, and packaging. Any interruption in supply is quickly reflected in prices.

Alba’s decision to cut production has amplified the supply shock. The company has an annual capacity of about 1.6 million tons, with this reduction accounting for 19%, creating an annualized supply gap of about 300,000 tons and significantly heightening market concerns about aluminum supply.

Guillaume Osouf, Chief Analyst at CRU Group, pointed out in his latest report that if it weren’t for generally weak global aluminum demand, the recent surge in LME aluminum prices would have been even more pronounced. He also warned, “If the conflict continues, it will likely fundamentally alter our outlook for the rest of this year. This will not only be due to the lasting impact on global supply but may also negatively affect demand.”

Limited institutional participation, shorts quietly increase positions

Although aluminum prices have risen sharply, the market generally believes it is difficult for aluminum to replicate the retail investment frenzy seen in silver or copper. According to reports, one analyst was “surprised” by the entry of retail funds into this highly industrial commodity.

Institutional participation is also limited. Osouf told CNBC that since the outbreak of the conflict, the size of fund long positions has only slightly contracted compared to late January. In contrast, short moves have been more active—with short positions increasing by about 15,000 lots. “This suggests a considerable portion of investors expect prices to fall from current levels,” he added.

This position structure reflects clear divergences in the market's outlook for continued aluminum price increases. The duration of supply disruptions will be a key variable in determining future market direction.

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