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A Brief Look at the Impact of US-Iran Developments on the Aluminium Market

By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region

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Please see below our initial thoughts for the aluminium market given the latest US-Iran developments. 

LME 3M Aluminium Price - Intra-Day 

image-20260301165231-2

Source: Bloomberg

LME 3M  Base Metal Prices 1Y 

image 127262

image-20260301165416-3

Source: Bloomberg

First thing to say here is that historically, despite numerous threats going back decades (Iran–Iraq War in the 1980s, tensions in 2008, 2012, 2018, 2019), the Strait of Hormuz has never actually been fully closed to commercial shipping. However, we are in unprecedented times, especially with the attacks on US bases in the region and the promise of ongoing military intervention. While we see full closure as a last resort, the risk cannot be ruled out.

Impact on Domestic Production and Exports

The middle east region accounts for 6.85Mt of refined aluminum production, which is ~9% of global output and 22% of ex-China production. Exports (based on SMM figures) in 2024 stood at 5.14Mt from this region, therefore 75% of domestic production is exported. If we see a total closure of the strait, then there are no other shipping routes that have a similar capacity and we would expect near-term impact to result in ingot inventories building up, with a longer-term impact to result in smelter run rates reducing or stopping all-together given the region has a high dependency on raw material imports (bauxite, alumina). Note, bauxite imports come from far afield such as Australia, Guinea and Brazil. Having said this, most smelters hold 1-2 months worth of raw materials.

Impact on Supply Ex-Middle East

The impact of reduced exports from the Middle East will likely hit Europe the hardest, which holds a close to 20% import dependency (~1.2Mt in 2023) on Middle Eastern supply, strengthened in recent years by the move away from Russia stocks. Meanwhile, Asian countries , especially Japan and South Korea will also feel the pinch. Here we would expect regional premium to elevate, with countries trying to obtain more material from Canada, India or Africa, with Europe facing the most pressure. Meanwhile, China in part is somewhat protected in the near-term with close ties to Russian aluminium imports (which hit a record high in 2025). Looking to the US, with 50% tariffs already in place, any reduced supply from the Middle East will likely result in further inventory draw downs, again increasing regional premiums, and near-term volatility. Lastly, with a jump in energy prices this will have a longer-term impact of global producer margins, which will already be facing higher freight costs while the conflict remain in play.

This is set against a backdrop in which there are already increasing concerns about aluminium supply, given that China is facing a capacity ceiling of 45.5Mt this year, while aluminium is the only base metal to have inventories levels across key exchanges (COMEX, LME) below the five-year average level on a seasonality basis. In addition to fundamental tightness, aluminium prices are being underpinned by a wider market move into hard assets, with a spillover effect from precious metals into copper and aluminium, which is being further exaggerated by the involvement from the retail investor. Please note, speculative interest in aluminium was highlighted just in the last week, with increasingly bullish options trades.

Aluminium LME, COMEX & SHFE Investor Speculative Positioning 

image 127263

image-20260301165927-4

Source: Bloomberg

LME On-Warrant Stocks: Seasonality Chart
image 127264

Source: Bloomberg

SHFE Deliverable Stocks:  Seasonality Chartimage-20260301170409-5

Source: Bloomberg

 

Overall, while the aluminium sector is less exposed than oil, a key risk lies in short-term market volatility and potential supply chain disruptions, which for the time being will take center stage over a systemic crisis given the diversified nature of global aluminium production.

Please see below our annual outlook comments on aluminium (pre Iran-US conflict).

Aluminium ended 2025 as the third best performing base metal with an annual gain of 17.4%.

We see the outlook for aluminium as one of the most complicated within the suite, with a relatively balanced global market hiding the realities on the ground, in which regional narratives may muddy a clear market trend.

In simple terms, the big picture for aluminium is that supply will is set to be healthy in 2026, despite concerns arising over China (the largest producing country) set to reach its capacity ceiling of 45.5Mt in the year ahead. We expect the country to record another record year of output in 2026, which alongside significant capacity build in Indonesia will offset declines in production from regions such as Europe.

And this is set against modest demand ex-China, with advanced economies in recovery mode, while within China domestic demand is set to slow on front-loading last year in fast-growing areas of demand like renewables, power, set against challenged export demand on the back of cancelled tax rebates in Asia ex-China market and imposed US anti- circumvention tariffs on aluminium semi processed material.

However, with historically low global stock levels and the increasing involvement of speculative interest in aluminium, prices over the year are highly susceptible to volatility, with underlying fundamentals taking a back seat in the near-term.

 Image of Aluminium Smelters in the Region

image-20260301164715-1

Source: SMM
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