Aluminum's Gulf Squeeze
GFN – LONDON: Aluminum climbed to a four-year high on Tuesday, with three-month metal on the London Metal Exchange settling at $3,680 a tonne, as the prolonged closure of the Strait of Hormuz deepened a supply shortfall across major Gulf producers.
Three-month aluminum on the London Metal Exchange touched $3,707.50 a tonne before settling at $3,680, up about 1.25% on the day and the highest level since March 24, 2022, leaving the contract within reach of the all-time record of $4,073.50 reached after Russia's invasion of Ukraine, Bloomberg News reported. The premium for the cash contract over the three-month benchmark widened to $71 a tonne last week, a backwardation that points to acute tightness in physically deliverable metal.
“The effective closure of the Strait of Hormuz since late February has stranded exports from major Gulf producers,” Bloomberg reported, noting the disruption has accelerated global inventory drawdowns by roughly 3 million tonnes this year.
The Middle East accounts for about a tenth of global aluminum output, and several of the region's largest plants remain offline; Emirates Global Aluminium said its Al Taweelah smelter in Abu Dhabi, idled after missile and drone damage, may take up to a year to restore full output, while Aluminium Bahrain has declared force majeure and cut three production lines representing close to 19% of its 1.6 million tonnes of annual capacity.
Cost pressure is building upstream as well, with at least one smelter in Baise, in China's Guangxi province, curbing molten metal output and September alumina futures on the Shanghai Futures Exchange rising 5% on Tuesday to their highest since early May.
Aluminum has now gained more than 15% since the start of the Iran war, a move that compounds the effects of China's 45-million-tonne production cap and United States import tariffs on global supply. The development underscores aluminum's growing sensitivity to Gulf supply security within the broader industrial metals complex.