{"id":240,"date":"2026-05-25T22:42:20","date_gmt":"2026-05-25T22:42:20","guid":{"rendered":"https:\/\/reliablemovingcrews.com\/?p=240"},"modified":"2026-05-25T22:42:20","modified_gmt":"2026-05-25T22:42:20","slug":"warning-lights-flash-as-aluminium-reels-from-gulf-shock","status":"publish","type":"post","link":"https:\/\/reliablemovingcrews.com\/?p=240","title":{"rendered":"Warning lights flash as aluminium reels from Gulf shock"},"content":{"rendered":"
LONDON, May 22 (Reuters) – The Iran war is shaping up to be one of the biggest supply shocks in the history of the aluminium market.<\/div>
Gulf production of the metal, which is used across sectors as diverse as transport, packaging and solar panels, hasplummeted<\/svg>, opens new tab<\/span> to its lowest level in over a decade \u200bin April, according to the International Aluminium Institute (IAI). Regional run-rates dropped by an annualised 2 million metric tons over March and April.<\/div>
Two Gulf aluminium smelters have been damaged in missile \u200cstrikes. Emirates Global Aluminium’s Al Taweelah plant will take a year to repair<\/svg>, opens new tab<\/span>. At least one other producer – Qatalum – has reduced capacity.<\/div>
The continued closure of the Strait of Hormuz is causing major logistical problems for those still operating.<\/div>
The Gulf accounts for over a fifth of non-Chinese production and is a core supplier to buyers in Japan, South Korea, the European Union and the United States.<\/div>
The scale of the supply hit is not obvious from the London Metal Exchange (LME) price , which at $3,650 per ton is up by just 14% since \u200bthe start of hostilities and has yet to scale the 2022 heights that followed Russia’s invasion of Ukraine.<\/div>
But red lights are flashing on the market dashboard.<\/div>

LME TIGHTENS AS STOCKS DRAIN AWAY<\/h2>
The first is the sharp \u200btightening in LME time-spreads.<\/div>
The LME’s benchmark cash-to-three-months spread flipped into backwardation in early March and cash is currently trading at an $80 premium, the tightest the market has been since \u20602007. Back then it was a short-lived squeeze on short position holders. This time around the tightness is persistent and looks structural.<\/div>
That’s because LME stocks, which were already low, have been raided as traders look to fill \u200bthe supply-chain gaps opening up due to the loss of Gulf production.<\/div>
LME registered stocks have fallen by a third to 339,475 tons since the start of the year. The last couple of weeks have seen almost 68,000 \u200btons cancelled in preparation for physical load-out.<\/div>
The residual tonnage left on LME warrant is now largely Russian aluminium being stored at the South Korean port of Gwangyang. That’s no use to either U.S. or European buyers due to sanctions imposed over the Ukraine war.<\/div>
The recent daily drawdowns haven’t been transfers to off-warrant storage. These LME “shadow” stocks have also been draining away and are the lowest they’ve been since the exchange started reporting off-warrant stocks in 2020.<\/div>

PHYSICAL PREMIUMS SURGE<\/h2>
The second warning sign is the rise in \u200bphysical premiums around the world.<\/div>
The CME spot premium for Japan has more than doubled to $316 per ton over the LME price since the start of hostilities. Japanese buyers have accepted a premium of $350 for their second-quarter \u200bdeliveries, which is the highest surcharge in 11 years.<\/div>
The European duty-paid premium has jumped by 58% and the duty-unpaid by 75% since the start of March.<\/div>
The U.S. Midwest premium has risen by a relatively modest 8% but American buyers were already \u200cpaying record \u2060numbers to secure physical metal thanks to the impact of 50% import tariffs.<\/div>
These are the most visible manifestations of the Gulf supply shock. Less visible is what is going on in non-exchange-traded segments of the market such as billet, a product used by construction and transport sectors.<\/div>
In Rotterdam, the premium for aluminium extrusion billet has more than doubled to $1,100 over the LME base price, according to price reporting agency Fastmarkets.<\/div>

STRUCTURAL DEFICIT<\/h2>
The relative calm of the LME outright price belies a severe tightening of availability along the processing chain.<\/div>
While LME traders are pricing in the ebb and flow of headlines around the Iran war, physical buyers are paying up just to secure enough metal \u200bin a market that is heading towards a structural \u200bsupply deficit.<\/div>
The loss of production in the Gulf \u2060has been compounded by the closure due to high energy prices of the Mozal smelter in Mozambique.<\/div>
The combined hit has been a 2.4-million-ton drop in Western production over the last two months, according to the IAI’s latest figures. Things may get worse depending on whether those Gulf smelters still producing can source enough raw materials via \u200broutes that circumvent the Strait of Hormuz.<\/div>
China’s giant aluminium production base has stepped up production but is now running close to the government’s capacity cap, leaving \u200blittle room for further significant \u2060upside.<\/div>
While the country is showing signs of increasing exports in reaction to the Gulf supply hit, these shipments will mostly be in the form of semi-processed products such as strip, foil and bars rather than raw metal.<\/div>
Inventories, both exchange and non-exchange, can provide some short-term buffer but the longer the Strait of Hormuz remains closed, the thinner that cushion becomes.<\/div>
All of this is a generational shock for a market that has lived with structural oversupply and high inventories \u2060for the last \u200b20 years.<\/div>
The aluminium price isn’t yet reflecting the tectonic changes in the supply chain. Physical buyers, however, already know how much \u200bthe landscape has changed.<\/div>
(The opinions expressed here are those of Andy Home, a columnist for Reuters.)<\/div>
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