Global 9% Aluminum Supply Flooded with Uncertainties! Middle East Conflict "Heats Up" Aluminum Prices, But Is This Just the Beginning?

Oil is the undisputed “main character” in the Middle East war flames, but another major commodity, aluminum, has successfully staged a striking “breakthrough” amid widespread setbacks in the industrial metals market.

Since the large-scale military operations launched by the U.S. and Israel against Iran on February 28 local time, the supply chain of approximately 7 million tons of electrolytic aluminum and raw materials in the Middle East has suffered unprecedented shocks. Global electrolytic aluminum supply, accounting for 9%, is filled with uncertainties, quickly igniting supply concerns in the global aluminum market and pushing prices to record highs.

On March 12, the London Metal Exchange (LME) March aluminum futures briefly hit $3,546.5 per ton, up 2.5%, the highest in nearly four years. Compared to before this round of military conflict, LME aluminum has recently surged, with a total increase of over 10%. By contrast, copper, which previously attracted more market attention, has fallen nearly 2% in the same period.

Europe and North America are the main destinations for Middle Eastern aluminum exports, and local aluminum product consumers are paying the price for rising aluminum prices. The latest market data shows that the aluminum premium after customs duties in Europe has risen to about $420 per ton, the highest since the Russia-Ukraine conflict in September 2022. In the U.S., the Midwest premium has reached about $1.09 per pound, or roughly $2,400 per ton, approaching historical highs.

“From the overall capacity and trade pattern of electrolytic aluminum in the Middle East, this region is a core area for global primary aluminum production and trade,” said Liu Xiaolei, Director of Big Data at Shanghai Nonferrous Metals Network (SMM), in an interview with The Paper. According to statistics, by 2025, the total electrolytic aluminum capacity in the Middle East will reach 6.92 million tons, with actual output around 6.85 million tons, “accounting for over 9% of the global aluminum ingot supply, and being one of the key low-cost electrolytic aluminum regions worldwide.”

Aluminum, with its light weight, excellent electrical and thermal conductivity, corrosion resistance, and ease of processing and recycling, is an extensively used industrial metal. As the global “dual carbon” goals advance, emerging industries such as new energy vehicles and photovoltaics are becoming new engines driving aluminum consumption growth. Notably, due to energy costs and other factors, the overall global aluminum supply is already tight.

Before the outbreak of this Middle East conflict, although the region held a significant position in the global aluminum industry chain, its influence was not deeply perceived by the market.

The rise of the Middle East as an important aluminum production base is due to its unique energy economic advantages, creating sustained competitive advantages. The region’s abundant natural gas reserves provide energy costs for smelters that are about 30% to 40% lower than those relying on imported fuels or higher-cost electricity markets. As a result, the Middle East is also the most concentrated area for natural gas aluminum plants globally. Electricity is the largest single input cost in electrolytic aluminum production, and energy advantages directly translate into lower operating costs.

Statistics show that the electrolytic aluminum capacity in six Middle Eastern countries (Iran, Saudi Arabia, UAE, Bahrain, Qatar, Oman) accounts for over 9% of the global total. This region is not only an important producer but also a key net exporter hub for global aluminum supply, with about 4.5 to 4.8 million tons of primary aluminum flowing annually to the EU, U.S., and Southeast Asian markets, accounting for 65% to 70% of its total output.

In addition to Iran’s domestic electrolytic aluminum capacity facing shutdown or significant reduction risks, the entire Middle East faces similar difficulties. SMM analysis points out that the Strait of Hormuz is the only passage from the Persian Gulf to the Indian Ocean, carrying the main maritime transport of Middle Eastern primary aluminum and related raw materials. Its security directly affects regional aluminum industry operations; any disruption could trigger regional supply crises and propagate globally.

A particularly tricky issue is that the Middle East has very low self-sufficiency in bauxite and alumina raw materials, with countries like Bahrain and Qatar relying 100% on imports. This means that if the Strait of Hormuz, the “lifeline,” is cut off, the entire regional aluminum industry will face an impossible situation.

The war has already begun to directly burn through the industrial chain, meaning concerns over reduced aluminum supply have become an objective reality.

On March 3, Norway’s Hydro announced that due to natural gas shortages in Qatar, its joint venture Qatar Aluminum (Qatalum) has begun an orderly shutdown, expected to complete all plant closures by the end of March. This is the first aluminum plant in the Middle East to reduce production, with an annual capacity of about 636,000 tons.

On March 4, Bahrain Aluminum announced force majeure. Although its production facilities are still operational, the blockade of the Strait of Hormuz prevents smooth shipping and delivery, directly affecting contract fulfillment. The company’s website shows that its smelter is the second-largest in the world outside China, with an annual aluminum production of nearly 1.62 million tons.

If the Middle East situation continues to stagnate, the scope of shutdowns will inevitably expand. Even excluding energy supply issues, according to Mysteel research, the aluminum oxide inventory of Middle Eastern countries is about 30 days. If the Strait remains blocked for more than 2-3 weeks, some aluminum plants will consider proactively reducing production.

This supply crisis is triggering a chain reaction worldwide, with impacts exceeding some institutions’ expectations. Goldman Sachs pointed out that if the Middle East loses a month of full production, combined with rising European energy costs, aluminum prices could surge to $3,600 per ton. CITIC Securities also believes that if the Strait remains blocked, oil and gas prices and overseas electricity prices could continue to rise sharply. As one of the metals with the highest electricity consumption, aluminum industry is particularly sensitive to energy price fluctuations. JPMorgan Chase emphasizes that the market may be underestimating the risk of supply disruptions in the aluminum industry. The bank estimates that a substantial disruption in Middle Eastern aluminum supply could push prices rapidly to $4,000 per ton.

Even after the conflict ends and production resumes, “the recovery cycle will take at least six months,” Liu Xiaolei told The Paper. The imbalance in overseas supply and demand will further widen, and rising overseas aluminum prices will also significantly boost domestic prices, with domestic aluminum exports likely to increase substantially. “The current price increase may just be the beginning,” he warned.

It is worth noting that as the world’s largest aluminum producer, accounting for nearly 60% of global output, China’s future capacity expansion is extremely limited. Since 2017, China’s electrolytic aluminum industry has implemented strict capacity control policies under supply-side structural reforms, with a ceiling of 45 million tons. This policy has become a rigid constraint on industry development. To date, domestic electrolytic aluminum capacity is very close to the maximum limit.

The global aluminum industry is holding its breath, waiting for the clouds over the Strait of Hormuz to clear. But for the global aluminum market, everything that has happened in the past two weeks is not just a short-term price pulse but a systemic stress test for this highly globalized supply chain, revealing its extreme fragility at critical nodes.

(Source: The Paper)