Middle East conflict cuts 9% of global capacity: LME aluminum prices surge to 4-year high, supply crisis worsens

Iran war continues to disrupt the global aluminum supply chain, profoundly reshaping the supply and demand landscape of the worldwide aluminum market.

London Metal Exchange (LME) aluminum prices rose 0.5% to $3,426.50 per ton on Wednesday morning, hovering near the four-year high reached this Monday. The Middle East accounts for about 9% of global aluminum production; the conflict has led to significant reductions in local output. Meanwhile, the Strait of Hormuz has effectively been blockaded, disrupting both raw material imports and finished product exports. Aluminum prices have increased by over 9% on the LME this month, with a 27% rise over the past year.

Signs of tight supply are emerging from multiple dimensions. On Tuesday, Rio Tinto quoted a Q2 aluminum supply premium of $350 per ton to Japanese buyers. According to media reports citing insiders, this will be the highest quarterly premium level since 2015.

U.S. government statements on the conflict’s progression have been inconsistent, causing continued volatility in the commodities markets this week. U.S. officials signaled on Tuesday that military actions against Iran are still escalating, and diplomatic negotiations are nearly impossible. This contradicts previous statements by Trump suggesting the conflict might end soon, making it increasingly difficult for markets to gauge the duration of supply disruptions.

The Hormuz blockade severely impacts Middle Eastern capacity

The Middle Eastern aluminum industry faces a double blow—direct reductions in local smelter output due to the conflict, and the blockade of the Strait of Hormuz further cutting off raw material imports and finished product exports. The strait is a critical route for Middle Eastern aluminum producers to obtain raw materials like alumina; the blockade has nearly paralyzed this supply chain.

Middle East accounts for about 9% of global aluminum production, and the scale of supply disruption is significant. Under mounting market pressure, canceled warehouse warrants at LME warehouses have surged. According to Bloomberg data, this increase is the largest since May 2024, mainly driven by pickup demand from warehouses in Malaysia.

Japanese aluminum premiums hit 11-year high

Premiums at major Japanese ports are an important benchmark for Asian aluminum pricing, paid above LME spot prices. Insiders told Bloomberg that Rio Tinto quoted a Q2 supply premium of $350 per ton to Japanese buyers on Tuesday. If finalized, this would set the highest quarterly premium since 2015—when premiums exceeded $400.

Notably, Rio Tinto previously offered a quote of $250 per ton, but after the U.S. and Israel escalated strikes against Iran last week and aluminum prices surged, the company withdrew that offer and raised it sharply to $350. Besides being a mining giant, Rio Tinto operates smelters in Canada and Australia and is one of the world’s top aluminum suppliers.

The tight supply has triggered a chain reaction among downstream manufacturers in Asia. Bloomberg reports that several Japanese auto parts manufacturers have begun seeking supplies from Russian aluminum giant United Co. Rusal International PJSC to address the Middle Eastern supply gap.

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