The war in Iran disrupted the supply chain, and aluminum prices rose nearly 10% in the month, the largest monthly increase in the past two years.

# By Zhao Ying

Source: Wall Street CN

The closure of the Strait of Hormuz has cut off the export route for roughly 10% of global aluminum production capacity in the Persian Gulf. Aluminum Bahrain has cut output by over 20%, while a 1.6-million-tonne smelter in the UAE has been damaged. Natixis warns the global market could swing abruptly from a 200,000-tonne surplus to a 1.3-million-tonne deficit. LME aluminum has risen nearly 10% this month, its largest monthly gain in nearly two years, standing out as a rare outperformer amid a broad March selloff in metals.

Hit by the Middle East conflict’s disruption to global aluminum supply chains, aluminum prices are on track for their strongest monthly gain in nearly two years, a rare bright spot in an otherwise downbeat March metals market.

Three-month LME aluminum rose 1.8% on Tuesday to $3,461.50 per tonne, approaching the $3,500 mark. The metal has gained nearly 10% month-to-date, its largest monthly advance since April 2024. The conflict has closed the Strait of Hormuz, severely disrupting roughly 10% of global aluminum production capacity in the Persian Gulf and abruptly tightening the global supply picture.

Iranian drones and missiles have struck facilities operated by Aluminum Bahrain and Emirates Global Aluminium (EGA). While neither company has disclosed specific damage figures, the market widely anticipates a severe impact on supply-demand balances. Meanwhile, China—the world’s top aluminum producer—has seen a notable increase in orders from other regions, and aluminum premiums in markets such as Japan have surged sharply.

## Conflict hits Persian Gulf aluminum heartland

The Middle East is a major global aluminum production hub, with Persian Gulf countries accounting for roughly 10% of global primary aluminum output, nearly all of which is exported. The closure of the Strait of Hormuz has severed this export artery, triggering an abrupt shift in global aluminum trade flows.

Iranian drone and missile attacks have targeted facilities operated by Aluminum Bahrain and EGA. EGA’s Al-Taweelah smelter in the UAE has an annual capacity of 1.6 million tonnes, making it one of the world’s largest single-site aluminum smelters. Neither company has provided clear details on the extent of damage, but market concerns over their long-term production capacity continue to mount.

Aluminum Bahrain has cut output by about 20%, while the UAE’s 1.6-million-tonne smelter has also been affected. Combined with ongoing production cuts in Europe, Africa and elsewhere, the global potential reduction is estimated at 1.5–2 million tonnes per year, with the supply-tightening trend unlikely to reverse in the near term.

## Analysts warn: market could flip from surplus to deep deficit

In a research note, Bernard Dadhah, analyst at Natixis SA, warned that EGA’s Al-Taweelah plant could face prolonged shutdowns, potentially flipping the global aluminum market from a projected 200,000-tonne surplus next year to a 1.3-million-tonne deficit. He added that if Aluminum Bahrain’s facilities also suffer long-term damage, the supply gap would widen further.

This potential supply-demand reversal is the core driver behind aluminum’s resilient rally in March, even as other base metals have slumped. Copper, zinc and nickel all posted monthly declines, with copper falling more than 8%—on track for its worst monthly performance since June 2022—weighed by rising energy costs and deteriorating global growth prospects. Aluminum, however, has borne the brunt of direct supply shocks due to its concentrated production in the conflict zone.

## Demand support reinforces bullish case

While supply faces headwinds, demand provides solid support. Inelastic demand from infrastructure construction and the new energy sector underpins aluminum’s fundamental upward momentum.

Supply disruptions have triggered ripple effects across trade flows. Aluminum premiums have surged in traditional import markets like Japan, prompting buyers to ramp up purchases from China.

According to a March 30 report in The Wall Street Journal, U.S. President Donald Trump told aides he is willing to end military action against Iran even if the Strait of Hormuz remains largely closed. The announcement stabilized most metal prices on Tuesday, but supply concerns in the aluminum market have not abated, keeping prices elevated. Market participants widely agree that supply uncertainty will continue to dominate aluminum price action until the Middle East situation becomes clearer.

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