The price of aluminum on the London Metal Exchange has recently broken through $3,600 per ton due to tight supplies and disruptions in Middle East supplies.

The head of US aluminum company, William Oplinger, had previously warned that over 2.5 million tons of annual smelting capacity and nearly 2 million tons of aluminum production capacity have been idled since the outbreak of the conflict, much of it related to the Strait of Hormuz.

Before the outbreak of war, about 8.8 million tons of alumina and 6 million tons of bauxite were transported through the Strait of Hormuz each year.

Century Aluminum Chief Executive Officer Jesse Gary added that turmoil in the Middle East is expected to expand the global aluminum deficit to 14 million tons in 2026, and such a large deficit is not possible to be filled in the short term.

The turmoil in the Middle East has taken an unprecedented toll on the aluminum industry. Currently, aluminum's idle capacity is almost zero, its inventories were already at a 55-year low before the conflict, and the costs of substitutes such as copper and plastics remain extremely high by historical standards.

Faced with a serious supply crisis in the aluminum industry, Citibank has raised its target price for aluminum in the second half of 2026 to $4,000 per ton, and the average price next year may reach $5,350 per ton.

The impact has been made

Citibank analysts said that China's aluminum production increase is still limited, and supply growth outside of China is not enough to make up the shortage, and the damage caused by the supply shock has already formed. Even in the case of weak demand, there will still be a supply shortage of about 2.7 million tons this year.

Analysts emphasized that what matters is that the market no longer needs robust demand growth to maintain structural shortages, a particularly thorny situation because persistent shortages must eventually be made up by drawing down inventories.

The market could initially cushion the impact of rising aluminum prices through hedging, but as buffer space narrows, market risk exposure is increasing. Unless there is a severe recession of the kind seen during an economic downturn or the global financial crisis of 2008-09, the downside risk for aluminum prices is set to narrow.

Beyond Citi, JPMorgan expects a supply gap of about 19 million tons in the aluminum market this year, Wood Mackenzie sees a gap of about 40 million tons. UBS expects aluminum prices to reach $4,000 a ton in the fourth quarter of this year.

In addition, data from the London Metal Exchange shows that the premium for aluminum spot prices relative to three-month futures contracts has risen to $84 per ton, reaching its highest level in nearly 19 years. This significant premium for spot prices indicates that the market has fallen into a serious spot shortage.

A quarterly premium agreement as a benchmark in Asia showed that buyers agreed to pay a premium of $350 to $353 per ton in contracts for the second quarter of the year, the highest level in 11 years. At the same time, the premium for aluminum in the United States Mid-West region also surged significantly, mainly due to US tariffs.

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