Supply risks stemming from Middle East geopolitical conflicts have driven aluminum prices to multi-year highs, imposing mounting cost pressures on businesses ranging from automakers to aluminum can producers.
Data shows London Metal Exchange (LME) aluminum prices have surged more than 13% since the U.S. and Israel launched strikes against Iran on February 28. Prices have risen roughly 19% year-to-date, at one point hitting the highest level since 2022.
Bob Brackett, analyst at investment bank Bernstein, pointed out that the aluminum price surge is mainly attributable to the closure of the Strait of Hormuz. As a vital shipping route for Middle Eastern aluminum exports, the region supplies around 7% of global aluminum output. He added that Middle East hostilities have damaged key facilities and taken approximately 3% of global aluminum supply off the market.
Affected by shipping disruptions in the Strait of Hormuz, Aluminium Bahrain (Alba), one of the world’s largest single-site aluminum smelters, was forced to launch production cut plans in mid-March. The company faces dual pressures of blocked metal exports and restricted raw material supplies.
Alba has phased down three major production lines, impacting roughly 19% of its annual capacity. The move aims to extend the lifecycle of existing bauxite and alumina inventories through proactive capacity curtailment, ensuring long-term stable operation of the plant’s core assets.
In addition, Emirates Global Aluminium (EGA), the largest aluminum producer in the Middle East, suspended operations at one of its smelters following Iranian missile attacks. The company has invoked force majeure clauses for at least part of its deliveries.
The impact of higher aluminum prices is increasingly reflected in corporate cost bases. Sherry House, CFO of Ford Motor (F.US), stated that Middle East tensions have heightened uncertainty over the outlook for aluminum, a critical raw material used in its F-150 pickup trucks.
The Detroit-based automaker expects adverse impacts from commodity price volatility to exceed $2 billion, nearly double its prior estimate, driven largely by rising aluminum costs.
“Given the volatility we are seeing across commodity markets, it is difficult to provide forecasts for 2027 at this stage,” Sherry House told analysts late last month. “We were already seeing global industry shortages in steel and aluminum well before the escalation of Middle East tensions.”
Joseph Spak, analyst at UBS, noted that aluminum prices remain a key focus among Ford investors. Ford’s share price has tumbled 17% since the outbreak of Middle East conflicts, compared with a 5.7% gain in the S&P 500 Index over the same period.
Nevertheless, in a client report last month, Joseph Spak argued that Wall Street’s concerns over aluminum prices are “overstated”, adding that Ford has hedged its aluminum price exposure for the year.
Tracey Joubert, CFO of Molson Coors Beverage (TAP.US), said last week that higher aluminum prices for deliveries into the U.S. Midwest lifted the company’s cost of goods sold by approximately $30 million year-on-year in the first quarter.
The producer of Coors Light and Miller Lite, which has used recyclable aluminum cans for more than six decades, expects aluminum prices to keep climbing this quarter.
Anthony DiSilvestro, CFO of Keurig Dr Pepper (KDP.US), also cited aluminum among commodities inflated by Middle East conflicts. He warned that the company would need to roll out measures to protect profit margins if elevated costs persist.
“Like many consumer goods firms, we are exposed directly and indirectly to commodity price volatility driven by the Middle East conflict,” he said during an analyst call last month.
Supply Shortfall Hard to Ease; Aluminum Prices May Surge Toward $4,000
Aluminum supply disruptions are unlikely to ease in the near term. UBS projects global aluminum supply growth of only 0.3% in 2026, down sharply from its earlier forecast of 2.4%, citing ongoing Middle East disruptions and limited room for capacity expansion in Europe.
Beyond geopolitical tensions, Bob Brackett explained that aluminum smelting is highly energy-intensive, leaving prices closely correlated with natural gas and coal costs. Middle East conflicts have pushed energy prices higher, further fueling aluminum inflation.
“Aluminum prices rise alongside input costs,” Bob Brackett wrote in a recent client note. “Further upside risks stem not only from supply chain disruptions but also from energy supply interruptions.”
Previous market analysis has warned that prolonged Middle East tensions and elevated energy costs could drive up power expenses for aluminum smelters across the region and globally, squeezing corporate profitability.
Many economies in Europe and North America already face obstacles to capacity restarts and new production due to tight power supply. Higher global energy costs may force high-cost facilities to shut down or cut output, further tightening primary aluminum supply and underpinning price gains.
JPMorgan warned in a recent research report that the global aluminum market is facing a severe and persistent supply shortfall, pushing the sector into a notable supply-side “black hole”.
The bank emphasized the aluminum market is experiencing its worst supply deficit in 25 years, evolving from cyclical tightness into a structural, prolonged supply collapse that cannot be repaired quickly.
The so-called “supply black hole” essentially means that once a supply gap forms due to damaged core smelting capacity, the market cannot swiftly return to equilibrium even if geopolitical tensions ease and logistics improve.
This crisis ranks as the most severe supply shock in 25 years, not only because Strait of Hormuz disruptions have hindered raw material and finished product shipments, but also because direct Iranian strikes on key smelters in Abu Dhabi and Bahrain have upgraded a temporary logistics disruption into a permanent loss of production capacity.
Market pricing is no longer driven merely by freight rates and risk premiums, but by tangible metal shortages set to last for multiple quarters or longer.
Crucially, aluminum features extremely low supply elasticity, giving the crisis strong path-dependent characteristics. Unlike typical commodities where price gains immediately trigger output recovery, aluminum smelting involves enormous capital, energy, equipment and technical restart costs once shut down.
Capacity restoration is generally measured in years, not weeks or months.
This is why JPMorgan defines the shock as a supply black hole: once priced into the market, the supply deficit cannot be erased quickly by ceasefire expectations or improved shipping conditions.
With core smelting assets permanently impaired, aluminum price upside increasingly reflects long-term tightness from irreversible capacity losses and delayed supply recovery, rather than purely geopolitical sentiment premiums.
JPMorgan stressed the aluminum market is shifting from a narrative of prolonged surplus to a new regime dominated by capacity destruction, limited substitution and regional supply imbalances.
In this context, the $4,000 per ton price target is no longer an aggressive upside scenario, but a natural outcome of an expanding supply black hole.
Goldman Sachs also warned in March that aluminum prices are highly likely to break the $4,000 per ton mark if prolonged Strait of Hormuz closures deplete regional inventories, exerting far-reaching impacts on the cost structure of global downstream manufacturing.
A team led by Michael Hartnett, top Wall Street strategist at Bank of America, forecast that the commodity rally will persist for years until the late 2030s even if the latest Middle East war temporarily de-escalates.
Strategists noted investors will continue pouring capital into commodity markets in the coming years, as the asset class stands to benefit from heightened global geopolitical and macroeconomic volatility.
Bank of America regards commodities as the highest-conviction post-conflict trade theme, poised to outperform equities in the years ahead.
A key driver is investor demand for hedging against geopolitical risks, inflation and U.S. dollar weakness. Global geopolitical rivalry and the AI race are intensifying competition for energy, rare earths, minerals and critical resources.
Strategists summed up the core logic: whoever controls chips, rare earths, minerals and high-efficiency energy will dominate the global AI competition.
In the post-conflict era, market pricing will no longer focus solely on interest rates and corporate earnings, but on resource security, supply chain control and fiscal expansion.
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