The Middle East conflict has entered its seventh day, creating the most severe supply shock to the global aluminum market in years. Substantial disruptions to shipping through the Strait of Hormuz have forced major local smelters to announce production halts or declare force majeure. J.P. Morgan warns that if production cuts persist, aluminum prices could rapidly approach the $4,000 per ton threshold.
As of March 6, LME aluminum prices rose 0.5% to $3,313 per ton, marking a weekly gain of over 5% and reaching the highest level since 2022. This represents the largest weekly increase since September 2024. The aluminum forward curve has shifted into backwardation, option-implied volatility has climbed to multi-year highs, and physical premiums in Rotterdam have surged significantly. Market sentiment is rapidly evolving from "logistical dislocation" to "actual production cuts."
Key events triggering the supply shock have materialized consecutively: Qatar's Qatalum smelter (annual capacity approximately 650 kilotons) announced a controlled shutdown to be completed by the end of March, with shareholder Hydro indicating a full restart would require 6 to 12 months. Aluminium Bahrain (Alba), with an annual capacity of about 1.6 million tons, has declared force majeure on some supply contracts. Emirates Global Aluminium (EGA) has also acknowledged delays in shipments of finished aluminum.
According to trading desk sources, J.P. Morgan's Gregory C. Shearer team characterized the situation in a March 5 research report as a "supply-driven event horizon" for the aluminum market, anticipating more shutdown announcements in the coming weeks. Under these conditions, prices have the potential to "rapidly charge towards $4,000 per ton."
Concurrently, Bank of America Securities' Michael Widmer team raised its forecast for the 2026 aluminum market supply deficit from 1 million tons to 1.5 million tons in a report also dated March 5, maintaining a peak price target of $4,000 per ton for the second quarter of 2027. This comes as LME aluminum inventories are nearly depleted, with over half of the remaining stock being Russian primary aluminum, which is not the preferred category for Western consumers, leaving an extremely limited available buffer.
Production halts and force majeure declarations are accelerating. The Middle East is a net exporter of approximately 5 million tons of primary aluminum annually, accounting for about 18% of global demand outside China. According to J.P. Morgan, Gulf Cooperation Council (GCC) countries exported roughly 1.3 million tons to Europe and 700,000 tons to the U.S. in 2025, with the Strait of Hormuz being a critical chokepoint for both raw material imports and finished metal exports.
Qatalum became the first smelter to announce a shutdown. As previously noted, QatarEnergy notified the joint venture smelter on March 3 that it would suspend natural gas supply due to Iran-related attacks forcing the shutdown of its primary LNG facility. Partner Hydro subsequently announced the initiation of a controlled shutdown, expected to be completed by end-March, stating that a full restart after gas supply resumes would take 6 to 12 months. J.P. Morgan estimates that even in the most optimistic scenario (a six-month halt), this would reduce 2026 aluminum supply by approximately 325,000 tons, further tightening the global primary aluminum balance to a deficit of 550,000 tons.
Force majeure declarations are spreading rapidly. Alba declared force majeure on some supply contracts on March 4. Emirates Global Aluminium (EGA) has acknowledged delays in shipping finished metal, stating it is "taking all measures to mitigate, including opening additional ports and utilizing stocks held outside the UAE." J.P. Morgan expects more force majeure notices to emerge in the coming days if shipping conditions see no substantive improvement.
While former U.S. President Trump announced plans to "expedite" insurance guarantees and naval escorts for tankers and commercial vessels transiting the Strait of Hormuz, J.P. Morgan notes the timeline for implementation remains unclear. Furthermore, existing insurance caps from the U.S. International Development Finance Corporation (DFC) may be insufficient to cover the required risk exposure, and exceeding these caps would require Congressional legislative authorization.
A countdown has begun: exhaustion of alumina supplies will trigger broader production cuts. Even if unable to ship products out, Middle Eastern smelters can maintain production for a period by accumulating inventory on-site. However, J.P. Morgan warns this window is quite limited.
Based on industry communication, J.P. Morgan assesses that most Middle Eastern smelters hold alumina inventories sufficient for only about 20 to 30 days of consumption. Simultaneously, shutting down an aluminum smelter is far more complex than simply "cutting power," a process that itself takes weeks—evidenced by Qatalum's month-long timeline for a controlled shutdown. This implies that even with some raw material buffer, more production cut announcements are likely within weeks, potentially involving full shutdowns or partial potline idling.
J.P. Morgan further notes that capacity shutdown announcements have a greater impact on supply-demand balance and prices than force majeure declarations—because smelter restarts take months, causing persistent supply losses. Additionally, there is risk of sudden power outages if infrastructure attacks continue. An uncontrolled outage could freeze molten metal in the pots, necessitating full relining for restart, significantly increasing cost and downtime.
From a supply chain vulnerability perspective, the Middle East has extremely limited alumina self-sufficiency. J.P. Morgan data shows regional alumina production is about 4.6 million tons, covering only about 35% of local aluminum smelting needs, with 65% of alumina demand reliant on imports. Only Saudi Arabia's Ma'aden possesses a fully integrated supply chain; EGA's Al Taweelah alumina refinery meets less than half of its own alumina demand and still relies on imported bauxite.
Geographically, J.P. Morgan considers Oman's Sohar smelter (approx. 400k tpy capacity) and Ma'aden's smelter (approx. 840k tpy) relatively less impacted currently—Sohar's port is on the Gulf of Oman, bypassing the Strait of Hormuz, while Ma'aden maintains production via its integrated chain. However, this still leaves combined capacity of about 4.3 million tpy in Bahrain and the UAE, plus approximately 600k tpy in Iran, at high risk. If this total capacity of about 5.6 million tpy were forced to halt, over 460,000 tons of monthly primary aluminum production would exit the market.
The inventory buffer is weak: market cushions are nearly exhausted. LME aluminum inventories have declined for years and are near historical lows. According to BofA, LME registered aluminum stocks are around 462,000 tons, with Russian-origin metal comprising over half—a category not prioritized by Western consumers, making the effectively available inventory even more limited.
Changes in the futures curve structure further confirm market tightness. The aluminum forward curve has shifted from contango into backwardation, where spot prices exceed forward prices, indicating willingness to pay a premium for immediate delivery. BofA notes that option-implied volatility has risen to multi-year highs, and risk reversal indicators have increased significantly, showing a clear bullish skew.
As previously highlighted, Morgan Stanley pointed out in a March 2 report—issued before the current conflict escalated fully—that global aluminum supply faces systemic constraints centered on power scarcity, including China's capacity cap, power bottlenecks limiting Indonesian growth, and continued contraction in European and U.S. smelting capacity. Even without the Middle East conflict, the aluminum market was already tight, setting the stage for potent price transmission from the current supply shock.
Supply shock transmission to Europe and the U.S. will be direct due to their high import dependence on the Middle East. BofA data indicates the Middle East accounts for about 20% of European aluminum imports, with the UAE contributing roughly 11% and Bahrain 8%. The UAE is also a key source of primary aluminum imports for the U.S.
Pressure is particularly acute in Europe. Beyond Middle Eastern supply disruptions, South32's Mozal smelter in Mozambique (approx. 500k tpy capacity) has decided to close, unable to renew its power contract at an economically viable tariff (around $50/MWh) versus utility Eskom's offer near $100/MWh. BofA data shows Mozal exported about 430,000 tons of aluminum to Europe in the first 10 months of 2025. The European aluminum physical premium (in-warrant, duty-paid) has surged to around $360 per ton, the highest level since late 2022.
In the U.S., tariffs significantly complicate sourcing alternative supplies. According to a prior Morgan Stanley report, average monthly primary aluminum imports fell by approximately 77,000 tons post-tariff implementation, a gap not fully filled by increased scrap imports. The U.S. Midwest premium has now risen to about 19 cents per pound, exceeding the theoretical level implied by tariff costs of around 18 cents.
Major banks warn: supply tipping point nears as aluminum prices target $4,000. Synthesizing the above dynamics, J.P. Morgan explicitly stated in its report that the aluminum market is "steadily being pushed towards a significantly bullish, supply-driven event horizon." The bank noted that if Middle Eastern supply moves towards substantial disruption, aluminum prices possess the conditions for a "fast move towards $4,000/ton," introducing significant upside risk to its near-term price forecasts—J.P. Morgan's current 2026 average price forecast is $3,044 per ton.
BofA, in its report, explicitly raised its 2026 global aluminum deficit forecast to 1.5 million tons and maintained its peak price forecast of $4,000 per ton for Q2 2027. The bank emphasized that only an extreme demand contraction on the scale of the Global Financial Crisis or COVID-19 pandemic would push the market into surplus, a historical precedent that is exceedingly rare. Morgan Stanley set its 2026 bull-case target at $3,700 per ton, noting the copper-aluminum price ratio remains at historically high levels above 4x, suggesting significant catch-up potential for aluminum relative to copper.
Notably, J.P. Morgan indicated that potential negative demand feedback—including macroeconomic pressure from rising energy costs and demand destruction from high aluminum prices—currently remains a "second-order effect," not the core variable driving market logic. "Under a scenario of continued supply chain blockage and expanding shutdowns, the primary trading logic for aluminum prices remains significantly to the upside," J.P. Morgan wrote.
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