London Metal Exchange (LME) three-month aluminium prices have returned to just above USD 3,000 per tonne, close to their levels in early February, before US and Israeli military operations against Iran began. However, the apparent stability in prices masks continuing pressure across the physical aluminium supply chain, following Iranian missile attacks on Gulf smelters and disruptions to shipping through the Strait of Hormuz.
Almost 3 million tonnes of aluminium production capacity has been knocked out by the disruptions. Eight months later, the market appears relatively unconcerned, with traders relying on rising output from Indonesia and increased Chinese exports of aluminium products to compensate for the shortfall until Gulf smelters recover and shipping through the Strait of Hormuz returns to normal.
Despite these alternative supplies, the market has yet to fully overcome the effects of the disruption, with physical premiums remaining elevated and exchange inventories falling to multi-year lows.
According to the International Aluminium Institute, primary aluminium production in the Gulf fell by an annualised 2.8 million tonnes between February and May. The decline reflected the forced shutdown of Emirates Global Aluminium’s Al-Taweelah smelter, damage to Aluminium Bahrain’s (ALBH.BH) facility and logistical difficulties affecting other regional producers.
Production has gradually recovered as the affected facilities undergo repairs and resume operations. However, the August production run-rate stood at an annualised 3.5 million tonnes, still 2.6 million tonnes below pre-disruption levels.
The shortfall has increased the importance of alternative supply sources, particularly China and Indonesia, whose growing exports are helping maintain metal availability in international markets.