LME aluminium prices rose 3.5% to a one-month high as tensions in the Middle East increased supply risk concerns. The focus is on changes in regional physical premiums rather than a broad fall in global supply. The Middle East has about 8% of global aluminium capacity and relies on the Strait of Hormuz for metal exports and alumina imports. Key producers in the region include Saudi Arabia, the UAE and Bahrain. The extent of any disruption depends on how long tensions last, as smelters usually hold around three to four weeks of alumina stocks. Short disruption may be manageable, while longer disruption can raise production risks. Even without a full closure of the Strait, higher freight costs, war-risk insurance and shipping delays may feed into premiums first. Europe and the US are most exposed due to reliance on Middle Eastern metal as marginal supply. European premiums are sensitive due to tight primary availability and already high duty-paid and duty-unpaid premiums. US Midwest premiums are structurally high because of tariffs, which may limit near-term rises but still leaves marginal pricing exposed to Gulf-related disruption. We are seeing LME aluminum prices push past $2,550 a tonne, a one-month high, as tensions in the Middle East create supply fears. New reports from late February 2026 show war-risk insurance for vessels passing through the Strait of Hormuz has doubled. This is a direct response to the escalating conflict which introduces significant supply risks into the market. The core issue for us right now is not a global deficit but a sharp rise in regional delivery costs and availability. The European duty-paid premium, for instance, has already jumped by over 15% in the last two weeks, far outpacing the underlying LME price. This suggests the market is pricing in logistical disruption rather than a fundamental production shortage. Given that smelters only hold three to four weeks of alumina inventory, any prolonged disruption in the Strait would directly threaten production. Europe is particularly vulnerable because its primary supply is already tight, and it relies on Middle Eastern metal. LME warehouse data from Rotterdam in late February 2026 already showed stocks at their lowest level in nine months, highlighting this sensitivity. In the US, the Midwest premium is already high, but it remains exposed to any halt in shipments from the Gulf. Last year, we saw a steady 12% of US primary aluminum imports originate from the UAE and Bahrain, making it a key source of marginal supply. A disruption would force buyers to seek more expensive alternatives, putting a floor under the already elevated premium. Looking back from our perspective in 2025, we saw a similar dynamic unfold during the geopolitical shocks of 2022. Back then, fears over Russian supply caused European premiums to spike dramatically even while LME inventories remained relatively stable initially. This historical precedent supports the view that premiums will react faster and more violently than the underlying metal price. Therefore, we are positioning for a widening spread between regional premiums and the LME flat price. This could involve taking long positions in derivatives that track physical premiums against a neutral or short LME futures position. We are also considering buying short-dated call options to capture any sharp, sudden price moves driven by further escalation in the conflict.

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