Since March, the Shanghai-London price spread has continued to narrow

Since the outbreak of U.S.-Iran tensions, the Strait of Hormuz has remained blocked. As the Middle East accounts for nearly 23% of global primary aluminum production, the normal supply of primary aluminum from this region has a significant impact on the global primary aluminum market, which is already facing a supply shortage this year.

Supply Risks for Primary Aluminum in the Gulf Region

Currently, Iran has four aluminum smelters: Southern Aluminum, Iran Aluminum, Al-Mahdi Aluminum, and the Iranian Alumina Company. In 2024–2025, the primary aluminum output of these four plants is projected to be 243,700 metric tons, 175,100 metric tons, 152,500 metric tons, and 33,200 metric tons, respectively, for a total output of 604,500 metric tons, accounting for approximately 2% of global primary aluminum supply. At present, Iran has not announced any definitive plans for production cuts or shutdowns, but has already implemented precautionary production cuts. As the conflict persists, the risk of further production cuts or shutdowns is gradually mounting.

Among the other five Gulf countries, the United Arab Emirates has the highest annual primary aluminum production, at approximately 2.69 million metric tons; Bahrain ranks second, with an annual output of about 1.6 million metric tons; Saudi Arabia ranks third, with an annual output of about 900,000 metric tons; Fourth is Qatar, with an annual output of approximately 650,000 metric tons; fifth is Oman, with an annual output of nearly 400,000 metric tons. Currently, the total annual primary aluminum production of the six Gulf countries stands at approximately 6.89 million metric tons, accounting for about 23% of global primary aluminum supply. On March 3, Norway’s Norsk Hydro announced that its Qatalum aluminum smelter in Qatar would undergo a controlled shutdown of aluminum production due to a disruption in natural gas supply. However, on March 12, the company stated that after the natural gas supplier for the Qatalum smelter confirmed it would maintain a reduced supply, the smelter had decided against further production cuts and would maintain approximately 60% of its capacity for aluminum production. Bahrain’s Alba Aluminum, meanwhile, declared force majeure due to disruptions in the Strait of Hormuz, which have prevented smooth loading and shipment of goods. Although the plant’s production facilities are currently operating normally and the impact on annual primary aluminum output is limited in the short term, expectations regarding supply security have been disrupted.

Risks to Primary Aluminum Feedstock Supply in the Gulf Region

Regarding upstream raw materials, the primary concerns involve supply risks for alumina and bauxite. The six Gulf countries have a total installed alumina production capacity of 4.55 million metric tons per year, with an actual output of 4.49 million metric tons per year; however, this capacity is unevenly distributed, primarily concentrated in the United Arab Emirates (UAE) and Saudi Arabia. Saudi Arabia possesses an alumina production capacity of 1.85 million metric tons, which is sufficient to achieve nearly 100% self-sufficiency. Additionally, as Saudi Arabia sources its bauxite from domestic mines and does not rely on imports, it is the least affected among the six Gulf countries. The UAE has an alumina capacity of 2.45 million tons; however, with an annual primary aluminum production of 2.695 million tons, this is insufficient for self-sufficiency. Its self-sufficiency rate stands at around 40%, meaning 60% must still be imported, and 100% of its bauxite is also imported. Iran’s annual alumina capacity is only 250,000 tons, and its primary aluminum production self-sufficiency rate is just 20%, with 80% still requiring imports. As for the remaining countries—Bahrain, Qatar, and Oman—they lack local raw material supply systems and must import both alumina and bauxite.

Therefore, with the exception of Saudi Arabia, the other five countries all face raw material shortages to varying degrees. If the blockade of the Strait continues, inventories gradually run low, and raw material supplies cannot be restored in a timely manner, the likelihood of primary aluminum smelters in the region gradually shutting down or reducing production will increase.

Shanghai Aluminum Underperforms LME Aluminum

Since March, the Shanghai-LME ratio has continued to decline. Previously, Shanghai aluminum rose by approximately 6.5% in March alone, while LME aluminum gained nearly 12%. This divergence stems primarily from the fact that, since the outbreak of the U.S.-Iran conflict, LME and Shanghai aluminum have followed two distinct market logics. LME aluminum has been driven by widening supply gaps amid geopolitical tensions and the ongoing blockade of key shipping lanes, with inventories at historic lows; In contrast, SHFE aluminum has been driven by a tight supply-demand balance under self-sufficiency, with social inventories at near-five-year highs. Compared to LME aluminum, SHFE aluminum faces lower supply risks but weaker inventory support. In the short term, the domestic market has not seen a rush to buy at high prices, which has to some extent curbed the elasticity of SHFE aluminum’s price movements in tandem with LME aluminum.

From an international trade perspective, can trade flow arbitrage eliminate this price differential? First, China is a net importer of primary aluminum. In 2025, China imported a total of 2.547 million metric tons of primary aluminum, with the majority coming from long-term contracts with Rusal, and a small portion from countries such as Indonesia and India. Imports from the Middle East are essentially negligible. At the same time, due to the price differential between overseas and domestic primary aluminum, China has been incurring losses on primary aluminum imports for several consecutive years. In March, each ton of imported primary aluminum resulted in a loss of over 3,000 yuan, making trade flows on the import side highly unlikely. Secondly, China exports virtually no primary aluminum to the Middle East, with only aluminum materials and products totaling less than 200,000 tons each, but this volume has a relatively limited impact on the overall market. Therefore, from an international trade perspective, the trade correlation between China and the Middle East regarding primary aluminum is relatively low, and the likelihood of arbitrage through spot trade flows to narrow the price spread is relatively small.

At present, the market remains focused primarily on geopolitical conflicts and developments regarding the blockade of the Strait of Hormuz.

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