"Critical point" approaching! JPMorgan: Middle East turmoil causes substantial supply shock, aluminum prices aiming for $4,000!

The Middle East conflict has entered its seventh day, and the global aluminum market is facing the most severe supply shock in years. Shipping through the Strait of Hormuz has essentially come to a standstill, forcing major local smelters to announce shutdowns or force majeure, with JPMorgan warning—if the reduction in production continues, aluminum prices have the potential to quickly hit the $4,000/ton mark.

As of March 6, LME aluminum prices rose 0.5% to $3,313 per ton, with a cumulative weekly gain of over 5%, reaching the highest level since 2022 and recording the largest weekly gain since September 2024. The forward curve for aluminum futures has now switched to a spot premium (backwardation) structure, implied volatility in options has risen to multi-year highs, and physical premiums in Rotterdam have also surged significantly. Market sentiment is rapidly shifting from “logistical dislocation” to “actual production cuts.”

Key events triggering the supply shock have already occurred: Qatar’s Qatalum smelter (annual capacity about 650,000 tons) announced controlled shutdown to be completed by the end of March, with shareholder Hydro stating a full restart would take 6 to 12 months; Aluminium Bahrain (Alba), with annual capacity of about 1.6 million tons, announced force majeure on some supply contracts; Emirates Global Aluminium (EGA) of the UAE admitted delays in finished aluminum shipments and deliveries.

According to the Windy Trading Desk, JPMorgan’s Gregory C. Shearer team characterized the current situation as the aluminum market’s “supply-driven event horizon” in a March 5 report, expecting more shutdown announcements in the next few weeks. By then, aluminum prices have the potential to "quickly rush toward $4,000/ton."

In a report on the 5th, Michael Widmer’s team from BofA Securities simultaneously raised the forecast for aluminum supply shortages in 2026 from 1 million tons to 1.5 million tons and is bullish that aluminum prices will reach $4,000/ton in Q2 2027. At this point, LME aluminum inventory is almost depleted, with over half the remaining stock being Russian aluminum, not the category preferred by Western buyers, making the effective buffer extremely limited.

Shutdowns Begin, Force Majeure Announcements Spread Rapidly

The Middle East exports about 5 million tons of primary aluminum a year, accounting for about 18% of global non-China demand. According to JPMorgan, in 2025, GCC (Gulf Cooperation Council) exports about 1.3 million tons of aluminum to Europe and 700,000 tons to the USA. The Strait of Hormuz is the essential channel for both incoming raw materials and outgoing finished aluminum.

Qatalum is the first smelter to announce shutdowns.Wallstreetcn previously reported, on March 3, QatarEnergy notified the joint smelter it would suspend natural gas supply due to Iranian attacks forcing its main LNG plant to cease operation. Hydro, Qatalum’s JV partner, immediately announced controlled shutdown, expected to finish by the end of March, and stated a full restart after gas supply resumes would require 6 to 12 months. JPMorgan estimated, the most optimistic scenario (six months downtime) will reduce 2026 aluminum supply by about 325,000 tons and further tighten the global aluminum supply-demand balance to a 550,000-ton deficit.

Force majeure declarations are spreading rapidly. According to Wallstreetcn’s previous piece, Alba already announced force majeure for some supply contracts on March 4; Emirates Global Aluminium (EGA) admits delays in finished metal shipments and transportation, saying it is "taking all measures to mitigate, including opening extra ports and utilizing inventory held outside the UAE." JPMorgan expects, unless there are substantial changes in shipping, more force majeure announcements will be made in the coming days.

Currently, Trump has announced that the US will "quickly" provide insurance and naval escorts for tankers and other commercial vessels crossing the Strait of Hormuz, but JPMorgan notes arrangements are still unclear. Also, the current US Development Financial Corporation (DFC) insurance ceiling may not be enough to cover the risk exposure, and raising the limit would require Congressional authorization.

Countdown Begins: Alumina Exhaustion Will Trigger Wider Production Cuts

Even if Middle Eastern smelters cannot ship externally, they can maintain production and accumulate inventory for a time. JPMorgan warns, however, this window is highly limited.

Based on industry communication, JPMorgan believes most Middle Eastern smelters’ alumina stocks can only last about 20 to 30 days. Meanwhile, shutting down an aluminum smelter is far more complex than “simply turning off the power,” with the process itself requiring weeks—Qatalum’s one-month controlled shutdown cycle is proof. This means, even if smelters have some raw material buffer, within several weeks more shutdown announcements will start, possibly involving full shutdown or closure of some electrolytic cells.

JPMorgan further notes, compared to force majeure, shutdown announcements create bigger turbulence for supply-demand and pricing—because smelter restarts require months, and lost output will continue to impact the market. Moreover, if infrastructure keeps being attacked, there’s a risk of sudden power outage. If uncontrolled outages occur, molten aluminum in the cells will freeze, requiring complete cell relining to restart, and costs and time will soar.

In terms of supply chain fragility, Middle Eastern alumina self-sufficiency is extremely low. According to JPMorgan, Middle Eastern alumina production is about 4.6 million tons, only covering about 35% of local aluminum consumption, with 65% of alumina needs dependent on imports. Only Saudi Arabia’s Ma’aden has a complete integrated supply chain; EGA’s Al Taweelah refinery can meet less than half of its alumina needs and still relies on imported bauxite.

Geographically, JPMorgan thinks Oman’s Sohar smelter (annual capacity about 400,000 tons) and Ma’aden (annual capacity about 840,000 tons) are currently less impacted—Sohar port lies in the Gulf of Oman, and cargo doesn’t need to traverse the Strait of Hormuz; Ma’aden relies on its integrated supply chain to keep operating. However, Bahrain and UAE’s combined annual capacity of about 4.3 million tons, plus about 600,000 tons from Iran, are at high risk. If all this 5.6 million tons/year capacity shuts down, over 460,000 tons of primary aluminum will exit the market monthly.

Weak Inventory Barrier: Market Buffer Nearly Exhausted

LME aluminum inventory has declined over the years and is now near historical lows. According to BofA, LME stocks total about 462,000 tons, more than half of which is Russian aluminum—hardly the preferred category for US/EU buyers, making actually available inventory much scarcer.

Changes in futures curve structure further illustrate the market tightness. Aluminum’s forward curve has switched from contango to spot premium (backwardation): spot prices are higher than forward prices, meaning buyers are willing to pay extra for immediate delivery. According to BofA, options implied volatility is at multi-year highs, risk reversal indicators have surged, and the market exhibits a clear bullish tilt.

According to Wallstreetcn’s previous piece, Morgan Stanley’s March 2 report (published before the current conflict escalated) already pointed out that global aluminum supply faces systemic constraints primarily driven by power shortages—Chinese capacity capped, Indonesian additions limited by power bottlenecks, and EU/US smelting capacity continues to shrink. Even absent Middle East conflict, aluminum is already tightly supplied, laying the groundwork for the price transmission of today’s shock.

US/EU Dependent on Middle East Imports, Supply War Intensifies

The supply shock is transmitted most directly to Europe and the US, as both depend heavily on Middle Eastern aluminum imports. According to BofA, the Middle East provides about 20% of European aluminum imports, with the UAE contributing about 11% and Bahrain about 8%; the UAE is also one of the US’s biggest primary aluminum import sources.

Pressure in the European market is particularly acute. Besides troubled Middle Eastern supply, South32’s Mozal smelter in Mozambique (annual capacity about 500,000 tons) has decided to shut down due to inability to renew its contract at an economically viable power price (~$50/MWh), while Eskom, the power supplier, quotes about $100/MWh. BofA data shows Mozal exported about 430,000 tons of aluminum to Europe in the first 10 months of 2025. European aluminum physical premiums (including tax) have risen to ~$360/ton, the highest since late 2022.

In the US, tariffs have made seeking alternative supply much tougher. According to Morgan Stanley, after tariffs, monthly primary aluminum imports dropped about 77,000 tons, and increased scrap imports are far from enough to fill the gap. Currently, the US Midwest aluminum premium has risen to about 104¢/lb, higher than the theoretical value of about 98¢/lb based on tariffs.

Major Banks Warn: Supply Critical Point Near, Aluminum Price Shooting for $4,000

Based on supply-demand logic above, JPMorgan in its report says the aluminum market is “steadily being pushed toward a significantly bullish supply-driven critical point.” The bank indicates, if Middle East supply continues toward substantial disruption, aluminum prices are poised to "quickly shock $4,000/ton," presenting upside risk to recent forecasts—JPMorgan’s current average price forecast for 2026 is $3,044/ton.

BofA’s report explicitly raises the global aluminum shortage forecast for 2026 to 1.5 million tons, maintaining aluminum’s 2027 Q2 peak price forecast of $4,000/ton. The bank stresses only in scenarios like the Global Financial Crisis or the COVID pandemic will demand shrink enough for aluminum to tip into oversupply, a rare historical precedent. Morgan Stanley sets its bull case target for 2026 at $3,700/ton, believing the copper-aluminum ratio stays above the historic high of 4×, with aluminum clearly lagging copper and room to catch up.

Notably, JPMorgan points out that the potential negative feedback from the demand side—such as higher energy prices suppressing macro economy, or aluminum price spikes dampening demand—are still “second-order effects” and not core variables for current market logic. “With persistent supply chain disruptions and expanding shutdown scale, the primary trading logic for aluminum prices remains distinctly upward.” JPMorgan wrote in its report.

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The above highlights are from Windy Trading Desk.

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