The conflict in Iran delivered one of the largest supply shocks ever to the global aluminum market, yet the runaway price surge many were braced for has been tempered by the resilience of producers from the Middle East to China.
When the latest geopolitical conflict in the Middle East began, market observers widely warned that unless the Strait of Hormuz was reopened swiftly, smelters in the region—accounting for roughly 10% of the world's capacity for this key industrial metal—could exhaust their raw material supplies within weeks, potentially forcing widespread shutdowns. This scenario threatened to plunge the market into crisis and possibly propel LME aluminum prices to record highs above $4,000 per tonne.
Fears escalated sharply when Iran targeted and conducted limited strikes on regional smelters, with the market broadly concluding that, beyond oil and gas, aluminum looked set to be one of the commodity markets hardest hit by supply-side disruption.
However, the reality has been that the ongoing blockade of the Strait of Hormuz since March has failed to ignite a sustained price rally. The supply shock has effectively been blunted by covert shipping and massive supply from China and Indonesia.
In recent weeks, Middle Eastern smelters have executed a series of complex logistical maneuvers—including daring voyages through the strait—to replenish stocks of alumina and other raw materials, helping avert widespread capacity shutdowns in a region responsible for 10% of global supply.
Beyond the Gulf, smelters in China and Indonesia have played a pivotal role in maintaining global market stability as buyers awaited a resumption of exports.
Now, as analysts, traders, and investors actively position for the next price move, clear divisions are emerging over how quickly the market will recover from the supply tightness.
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"A full physical freeze of aluminum metal supply has been avoided due to a combination of diverted alumina imports in the Middle East, rising exports from China, and increased production in Indonesia," said Amelia Xiao Fu, Head of Commodities Strategy at BOCI.
"The market has weathered the past few months by drawing down inventories, and these operational buffers are now depleted."
As the chart shows, the war-induced rally in aluminum prices has cooled as the supply side has responded to the gap—many industry analysts had previously forecast prices would climb toward $4,000 following attacks on Gulf smelters.
Middle Eastern smelters have been forced to cut output significantly, but the precise scale of the loss is difficult to quantify due to the clandestine nature of their supply chain consolidation efforts.
Simultaneously, China's production cap and Indonesia's power constraints only add to the difficulty of assessing how quickly supply and demand will rebalance.
Some of the market's staunchest bulls have recently lowered their aluminum price forecasts. JPMorgan noted that the time needed for prices to reach $4,000 per tonne is longer than expected, citing a robust supply response from Asia and significant drawdowns of industry shadow stocks during the Strait of Hormuz blockade.
At the other end, the commodities analyst team at Goldman Sachs Group sees aluminum prices moving toward $3,000 per tonne over the next year; even as the bank has raised its initial post-war forecasts to reflect that the Middle Eastern supply rebound may be slower than anticipated.
As of early trading on Monday in Asia, LME aluminum futures were stable at $3,396 per tonne.
The divergence among Wall Street analysts on aluminum's fundamental supply-demand balance is even more pronounced, with Citigroup forecasting the largest supply shock in over 50 years, while Bank of America expects the 76-million-tonne market to be broadly balanced.
The Middle East accounts for roughly 10% of global primary aluminum production, and the smelting process itself is extremely power-intensive. Therefore, risks like the Strait of Hormuz blockade, shipping disruptions, smelter attacks, and force majeure declarations immediately amplified fears of an "on-the-ground supply break."
However, in the view of some analysts, even a supply disruption in the Middle East due to the Strait of Hormuz does not equate to a severe blow to global aluminum supply.
As the chart shows, analysts' views on the scale of the aluminum shortfall vary widely—with the most bullish Citigroup citing a historic deficit, while Bank of America sees only a minor shortfall.
Note: Wood Mackenzie midpoint of 2.5 to 3 million tonne forecast range.
This lightweight industrial metal has long been seen as a substitute for copper, particularly in cost- and weight-sensitive applications with relatively forgiving conductivity requirements—a trend over a decade old that has accelerated recently due to resource security and new energy industry demands. However, copper remains irreplaceable in high-reliability, high-power applications.
Aluminum is a critical industrial metal because it combines lightness, corrosion resistance, workability, electrical conductivity, and thermal conductivity, making it widely used in transportation, construction, power transmission and distribution, packaging, machinery manufacturing, and new energy equipment.
The International Aluminium Institute forecasts global aluminum demand will grow about 40% from post-pandemic levels by 2030, also noting that aluminum's conductive properties make it crucial for infrastructure like electric vehicles and charging stations.
In the rapidly expanding global AI data center sector, aluminum's value is primarily manifested in three chains: first, in power infrastructure for transmission and distribution, busbars/cables, and structural components; second, as a lightweight thermal material in servers, switches, power supplies, cabinets, heat sinks, cold plates, and heat exchange components, often chosen for its high thermal conductivity, light weight, and low cost; third, as AI workloads push cabinet power density higher, making liquid cooling and direct-to-chip cooling critical, the importance of thermal management materials rises accordingly.
Thus, while not the most "visible" asset in the AI compute chain, aluminum is a vital foundational metal for the power, cooling, structural, and industrial manufacturing base behind AI factories.
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Some of the divergence stems from expectations that the supply losses for Gulf smelters from raw material shortages run deeper than they have publicly disclosed.
But for Ben Ayre, an analyst at ship-tracking firm Kpler, the increasing volume of alumina flowing into the region suggests smelters have made progress in replenishing stockpiles via covert shipping lanes, even with the Strait of Hormuz closed.
According to Kpler's analysis, in recent weeks, a handful of vessels have shown a willingness to transport alumina directly through the strait, turning off their tracking systems in so-called "dark voyages"—the same type of operations that have allowed a trickle of oil to continue reaching the global market during this crisis.
A larger volume of diverted alumina imports has been offloaded at Omani ports and trucked to smelters, presenting a major test for the region's logistical capabilities.
Data from the firm shows that, thanks to these latest efforts involving dark voyages, imports of this raw material into the Persian Gulf in May have recovered to pre-war levels.
"This has spawned some very novel solutions, and we've had to work very hard to keep up," Ayre said in an interview. "It's not unique, but it is somewhat extraordinary in terms of the value system it reflects to keep these operations running."
As the chart shows, Middle Eastern smelters have reconfigured supply chains to secure alumina—Kpler notes the region's import volumes recovered to pre-war boom levels as early as May.
The challenge of assessing the scale of tightness extends beyond the Gulf. Wall Street giant JPMorgan stated that the impact of the aluminum supply deficit seen earlier in the first half of the year has also been softened by a significant drawdown in privately held inventories, which are notoriously difficult to monitor.
"When we speak to clients, there's a clear sense the market is tight, but the first buffer is that invisible inventory," said Greg Shearer, Head of Base and Precious Metals Research at the bank.
He believes, however, that it is only a matter of time before those reserves are exhausted and exchange inventories also begin to be drawn down, pushing prices higher. "It's taking longer than expected, but there is still a significant gap to fill."
As the chart shows, private aluminum metal stocks in some markets appear to have fallen sharply—one industry estimate shows a steep decline in Japanese aluminum inventories.
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The behavior of Chinese smelters adds another layer of analytical complexity. Before the conflict erupted, bullish sentiment was already building in the aluminum industry as Chinese smelters began approaching what appeared to be a regulatory production cap that would end a long era of oversupply.
However, since the Iran war began in late February, official statistics indicate Chinese smelter output has been notably above the 45-million-tonne cap, with April data pointing to an annualized run rate of 47 million tonnes.
With exports surging, some analysts are betting that if China's—and Indonesia's—large smelters continue to run their plants above capacity, they could single-handedly resolve any degree of global shortage.
In assessing whether they will do so, analysts must precisely gauge how strictly China will enforce its cap and to what extent engineers can push more power through plants than they were designed to handle. One industry veteran likened the process to trying to balance an elephant on a fingertip.
As the chart shows, as Chinese smelters hit their cap, their output is under scrutiny from global investors, with any further Chinese production increases potentially softening the impact of shortages elsewhere.
A final variable is a potential wave of massive new aluminum supply from Indonesia. A surge in Indonesian aluminum exports has heightened focus on its emerging role as a major global supplier; simultaneously, there is growing market expectation that local producers will divert scarce power from less profitable nickel operations to aluminum plants.
"We always knew the capacity was coming, but the view so far has been that production would lag due to a lack of available power," said Amy Gower, Head of Metals and Mining Strategy at Morgan Stanley. "We haven't adjusted our models yet, but the risk now is that new supply could come faster as power shifts from nickel to aluminum."
As the chart shows, an aluminum boom is sweeping Indonesia—the country's aluminum exports are likely to continue surging this year.
Taken together, the "perfect supply storm" combination of a Middle Eastern supply rebound via dark voyages, elevated Chinese production, and soaring Indonesian output is fostering an industry consensus that prices will trend lower over the longer term.
However, as the US and Iran negotiate a deal to permanently end this round of Middle East conflict, the market is still fiercely debating whether, before the large-scale return of new raw materials and aluminum metal supply following a reopening of the Strait of Hormuz, a final squeeze will occur as inventories are depleted.
"I think if that was going to happen, it probably should have happened by now," said Helen Amos, Head of Commodities Research at BMO Capital Markets. "The aluminum supply-demand market has likely already passed the peak of the tightest part of the deficit."
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