Iran disrupts supply chain, aluminum prices set for biggest gain in 10 months

Impacted by the disruption of the global aluminum supply chain caused by the Middle Eastern conflict, aluminum prices are expected to record their highest monthly increase in nearly two years, making it a rare highlight in an otherwise declining metals market this March.

On Tuesday, three-month aluminum prices on the London Metal Exchange rose by 1.8%, closing at $3,461.50 per ton, approaching the $3,500 threshold. The cumulative monthly increase is nearly 10%, marking the largest single-month gain since April 2024. The conflict has led to the closure of the Strait of Hormuz, severely impacting about 10% of the world’s aluminum production capacity in the Persian Gulf region and suddenly tightening global supply.

Iranian drones and missiles have hit facilities belonging to Bahrain Aluminum and Emirates Global Aluminum (EGA). Although both companies have not disclosed specific losses, the market widely anticipates a significant impact on the supply-demand balance. Meanwhile, China, as the world’s largest aluminum producer, has seen a clear increase in orders from other regions, and aluminum premiums in markets like Japan have surged substantially.

Conflict Directly Hits Persian Gulf Aluminum Core Production Area

The Middle East is a major global aluminum production hub, with countries along the Persian Gulf accounting for about 10% of worldwide primary aluminum output, almost all of which is exported. After the closure of the Strait of Hormuz, this export channel was forcibly interrupted, dramatically altering global aluminum trade flows.

According to media reports, Iranian drone and missile attacks have affected production facilities owned by Bahrain Aluminum and EGA. Among them, EGA's Al-Taweelah smelter in the UAE has an annual capacity of 1.6 million tons and is one of the world's largest single aluminum smelting facilities. Both companies have yet to clarify the extent of the damage, but market concerns over their long-term production capacity continue to rise.

Bahrain Aluminum has already experienced a roughly 20% reduction in output, and the UAE's 1.6 million ton smelting facility has also been affected. Combined with ongoing production reduction pressures in Europe, Africa, and other regions, the estimated global potential reduction scale reaches 1.5 to 2 million tons per year, making the tightening supply trend hard to reverse in the short term.

Analysts Warn: Market May Shift From Surplus to Significant Shortage

Bernard Dadhah, an analyst at Natixis SA, pointed out in a research report that EGA's Al-Taweelah plant may face long-term shutdown. This will shift the global aluminum market from a surplus of about 200,000 tons next year to a shortage of about 1.3 million tons. He also warned that if Bahrain Aluminum facilities suffer long-term damage, the supply gap will widen further.

This potential reversal of supply and demand is the core reason behind aluminum’s strong performance against the overall downward pressure in the metals market in March. Copper, zinc, and nickel all recorded monthly declines, with copper prices dropping over 8% in March, expected to be the largest single-month decline since June 2022. This was mainly due to the conflict driving up energy costs and worsening global economic growth prospects. Aluminum is directly impacted more than other metals as its production is highly concentrated in areas central to the conflict.

Demand Support Combined with Tightening Supply Strengthens Aluminum Price Upside Logic

While the supply side is under pressure, the demand side is also providing strong support. Rigid demand for aluminum from infrastructure construction and the new energy sector continues to sustain, providing a fundamental basis for price increases.

Supply disruption has triggered a chain reaction at the trading level. Aluminum premiums in traditional import markets like Japan have soared, prompting buyers to increase their purchases of Chinese products.

According to Xinhua News Agency, the Wall Street Journal reported on the 30th that US President Trump told his aides that even if the Strait of Hormuz remains largely closed, he is willing to end military action against Iran. This statement stabilized most metal prices on Tuesday, but supply concerns in the aluminum market did not dissipate and prices remained high. Market participants generally believe that until the situation in the Middle East becomes clearer, supply uncertainty will continue to dominate aluminum price trends.

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