Output cuts at Aluminium Bahrain (Alba) and reduced operations at Qatalum have narrowed the aluminium supply outlook. Alba is phasing down reduction lines 1–3, equal to about 19% of its 1.6Mt annual capacity, while Qatalum is running at about 60%.
Gulf smelters depend on steady seaborne deliveries of alumina and hold only three to four weeks of stocks. The Gulf produces about 3% of global alumina and about 1% of bauxite, which increases reliance on imported raw materials.
The conflict has entered its third week, which may have used up much of the usual inventory buffer. If passage through the Strait of Hormuz remains disrupted, more production cuts could start within one to two weeks as stocks run down.
ING has adjusted its aluminium scenarios to match its latest oil market framework, with slightly tighter balance assumptions. A severe disruption scenario includes prices rising above $4,000/t, while the base case assumes severe shipping disruption in March that eases through the second quarter, limiting further curtailments at Alba and Qatalum.
We see the escalating supply risk in the Gulf as a clear signal for a bullish stance on aluminium. With disruptions affecting producers like Alba and Qatalum, a significant portion of the region’s output, which accounts for over 10% of global primary aluminium, is now under threat. This situation presents a direct challenge to the supply chain.
The core of the problem is the smelters’ reliance on imported alumina with only three to four weeks of inventory. We are now entering the third week of the conflict, meaning these limited stockpiles are likely close to being exhausted. Any further persistence of shipping disruptions in the Strait of Hormuz could trigger more production cuts within the next one to two weeks.
LME aluminium prices have already responded, surging over 8% in the last two weeks to trade near $2,850 per tonne. However, this is still significantly below the potential highs if the situation worsens. The market has not fully priced in the risk of a severe, prolonged outage which could push prices above $4,000/t.
Even when we looked at the market back in 2025, our outlook was positive due to China’s capacity limits and other global deficits. We have seen similar supply shocks before, such as in early 2022 when geopolitical events sent LME aluminium to a record high of over $4,070/t. This historical precedent shows how quickly prices can move when a major supply hub is threatened.
Given this, traders should consider establishing long positions through futures or buying call options to capitalize on potential price spikes. Options for April and May delivery are particularly relevant, as they cover the critical window where inventories are expected to be depleted. Any news flow related to the Strait of Hormuz will be the primary catalyst for market volatility.
However, we must also consider the base case scenario where shipping disruptions begin to ease through the second quarter. If diplomatic progress is made and shipping lanes reopen sooner than expected, the upward pressure on prices would quickly fade. This represents the main risk to a bullish position, making constant monitoring of the geopolitical situation essential.
Start trading now – Click here to create your real VT Markets account
