The global aluminum market woke up Monday to a serious jolt. Prices surged as much as 6% on the London Metal Exchange after Iranian drones and missiles struck two of the region’s most important smelting facilities over the weekend. Emirates Global Aluminium, the region’s top producer, reported significant damage at its Abu Dhabi site, while Aluminium Bahrain said it was still working to assess the full extent of the destruction at its own facility.
By early afternoon in Hong Kong, aluminum futures had settled at a gain of about 4.8%, trading at roughly $3,452 a ton. The numbers tell only part of the story. Behind the price movement is a market that was already under enormous strain before a single missile was fired.
Aluminum and the Hormuz problem
Even before the weekend strikes, the closure of the Strait of Hormuz had been quietly strangling the region’s smelters. The Middle East accounts for roughly 9% of global aluminum output, a metal woven into the fabric of modern life through its presence in aircraft, food packaging and solar panels. Without the steady flow of raw inputs that normally pass through the strait, producers had already begun cutting back.
Qatar’s Qatalum had reduced output by about 40%. Aluminium Bahrain had shuttered 19% of its capacity and shifted its remaining production away from higher-value aluminum alloys toward commodity-grade metal. The infrastructure was bending before the attacks. Now it may be breaking.
Shutting down an aluminum smelter is not like flipping a switch. The process of closing and later restarting a facility is expensive, time-consuming and technically demanding. With two of the world’s largest smelters now damaged, the effects on global production could last well beyond any eventual reopening of the strait.
Aluminum and a historic supply shock
The two facilities struck over the weekend together produce roughly 3.2 million tons of aluminum per year. Gulf Cooperation Council countries as a whole produce more than 6 million tons annually. To put that in perspective, the mere threat of disruption to Russian producer Rusal’s output of about 4 million tons was enough to drive aluminum prices up 30% in just three weeks back in 2022.
Analysts at Goldman Sachs had already projected a 900,000-ton supply deficit emerging in the second quarter of this year, with global inventories potentially falling to just 45 days of consumption coverage. That figure is lower than the level seen during the 2022 energy crunch that pushed aluminum to its record high of $4,073.50 a ton. Traders and industry executives have warned that if shipping through the strait does not resume soon, prices could breach that record.
Available stocks on the London Metal Exchange have been hovering near their lowest levels in more than two decades. Since the conflict began, those stocks have been drawn down further as buyers rush to secure physical metal. The premium paid for aluminum billet in Europe has jumped 63% since the war started.
Aluminum buyers brace for what comes next
For manufacturers, the pain is coming. Some Middle Eastern shipments had already cleared the strait before hostilities began, which delayed the worst of the shortfall until the third quarter. But the window is closing fast.
Rio Tinto recently raised its aluminum offer to Japanese buyers to a premium of $350 over the exchange price, the highest in over a decade. The squeeze is sharpest in specialized, high-purity aluminum alloys used in aircraft manufacturing, auto production and military applications. Concerns have grown in the United States over the availability of military-grade aluminum in particular.
For European industry, the prospect of sustained smelter closures across the Middle East represents a threat that was already described as severe before the drone strikes added a new and more alarming dimension to the crisis.
