Aluminum prices surged to their highest level in four years last week, driven by the outbreak of war between the U.S. and Israel against Iran, which has severely disrupted supply chains in the Middle East [1]. The closure of the Strait of Hormuz has been a significant factor, causing 3-month LME aluminum futures to jump as much as 10% by March 12, before settling around 8% higher. As of Wednesday afternoon in London, prices were hovering just below the 4-year high at $3,370 per ton [1].
Bahrain's Alba, the world's largest aluminum smelter, has cut production by 19% of its 1.6 million tons annual output, further exacerbating fears of a global shortage [1]. Analysts from CRU Group suggest that lower stock levels and the possibility of continued supply disruption could push prices towards $4,000 per ton. CRU principal analyst Guillaume Osouf noted that prices would likely be even higher if not for weak global demand, and warned that a prolonged conflict could drastically alter the market outlook for the rest of the year, impacting both supply and demand [1].
China, the world's largest aluminum producer, maintains production constraints at 45.5 million tons per year to manage emissions and prevent overcapacity. Artem Volynets, CEO of ACG Metals, stated that if the Chinese government decides prices are too high, they could restart idle smelters, potentially flooding the market with aluminum [1].
Despite the price surge, analysts do not expect aluminum to become a significant trade for retail investors, unlike silver or copper. Volynets expressed surprise at the prospect of retail involvement, and Osouf indicated that fund participation has remained limited since the conflict began, with gross long positions only marginally smaller than at the end of January [1].
CONCLUSION
The Iran conflict has triggered a sharp rise in aluminum prices, with supply disruptions and production cuts fueling concerns of a global shortage. While analysts see potential for further price increases, weak demand and China's production decisions could temper the rally. Retail investor involvement remains limited, and the market outlook hinges on the duration of the conflict and supply chain developments.