Aluminium supply has tightened due to disruptions linked to the Gulf conflict. Bahrain shipments have stopped, Qatar’s Qatalum smelter is set to shut, and the Alba plant in Bahrain has declared force majeure while seeking alternative shipping.
Disruptions are estimated at about 1.3Mt in 2025, with a projected aluminium market deficit of 1.9Mt in 2026. More than 5Mt of primary aluminium is shipped through the Strait of Hormuz each year from Bahrain, Qatar, Saudi Arabia and the United Arab Emirates.
Bauxite and alumina also move through the same route to supply smelters. A prolonged closure of the Strait of Hormuz could lead to further smelter closures.
LME aluminium prices reached $3,534/t, a level last seen in 2022. US and European premiums reached multi-year highs, and prices are expected to stay elevated as supply constraints continue and inventories fall.
The US Midwest premium is around $2,400/t, supported by a 50% import tariff. It is expected to move above current highs.
The ongoing Gulf conflict is creating a significant supply shock for aluminum. With Bahrain and Qatar, key producers, cutting output and the Alba facility declaring force majeure, we are now looking at a potential 1.9 million tonne market deficit for 2026. This disruption to the more than 5 million tonnes of metal shipped through the Strait of Hormuz annually is tightening the market considerably.
This supply chaos is keeping prices elevated, as we saw when LME prices recently hit $3,534 per tonne, a level we haven’t experienced since the sanctions on Russia back in 2022. LME-registered aluminum inventories have plummeted in response, falling below 350,000 tonnes in early March, which is a 40% drop since the year began. This rapid inventory drawdown supports the view that prices will remain strong.
Traders should consider that further escalation is not yet priced in, as vast amounts of bauxite and alumina still need to travel into the region to feed the smelters that remain online. War risk insurance premiums for vessels in the Strait of Hormuz have already surged by over 300% in the last month, adding a significant cost layer. Any prolonged closure of this vital seaway could trigger more production shutdowns.
The US market is particularly exposed, with the Midwest premium holding near $2,400 per tonne, lifted by import tariffs and now these shipping risks. Given that the US imports the majority of its primary aluminum, this premium is likely to test highs above current levels in the coming weeks. The underlying supply fundamentals are deteriorating quickly.
From a derivatives perspective, this environment suggests a bullish outlook for the coming weeks, favoring long positions. Recent market data shows that open interest in LME aluminum call options with strike prices above $3,800/t for the second quarter has nearly doubled in the last two weeks. This indicates that traders are actively positioning for further price increases driven by the intensifying supply squeeze.
Start trading now – Click here to create your real VT Markets account
