Aluminum Rises on Supply Disruption Fears

Aluminum futures rose more than 1% to around $3,110 per tonne in March, reaching a four-week high amid concerns that escalating Middle East tensions could disrupt key supply routes for regional producers. Shipping flows face heightened risk near Iran, particularly through the strategically important Strait of Hormuz, a critical corridor for exporting metal and importing raw materials such as bauxite and alumina. Hostilities intensified over the weekend following joint US and Israeli strikes on Iran, prompting retaliatory attacks by Tehran across several countries. The Middle East accounts for roughly 9% of global aluminum production capacity. Washington signaled it would continue its air campaign until strategic objectives are met, while Iran responded with successive missile barrages targeting neighboring states, including Saudi Arabia, the UAE, and Bahrain, all significant contributors to global aluminum supply.

Aluminum futures in the UK were near $3,100 per tonne in February, not too far from the three-year high of $3,270 on January 28th on the outlook of robust demand against low supply growth. Output in China is expected to stall this year after the major producer hit its output cap of 45 million tons in 2025, and the government's campaign against expanding manufacturing capacity limited expectations of a possible raise to the cap. However, attempts by Chinese smelters to build new alternative plants in Indonesia continued to face troubles amid higher energy costs and local regulations risks. Meanwhile, high energy costs, equipment failure, and difficulty in sourcing bauxite, suspended key smelters in other countries including Iceland, Mozambique, and Australia. In turn, the US President Trump administration pushed back against reports that tariffs on aluminum could be slashed from their current level of 50%. The taxes drove the premium on US aluminum over UK benchmarks to a record.

Aluminum futures in the UK fell to $3,050 per tonne, maintaining the pullback since the three-year high of $3,270 on January 28th, following reports that the US is due to reduce their tariffs on the metal. The Trump administration was planning to scale back tariffs on aluminum that were doubled to 50% last year, to address sticky inflation in for manufacturers. The move was due to improve the flow of metal into the US in the near term, prompting traders to sell metal from LME warehouses. Still, aluminum remained higher on the year amid risks to supply. Output in China is expected to stall after the major producer hit its output cap of 45 million tons last year. Moves by Chinese smelters to build new alternative plants in Indonesia continued to face troubles amid higher energy costs and local regulations risks. Meanwhile, high energy costs, equipment failure, and difficulty in sourcing bauxite, suspended key smelters in other countries including Iceland, Mozambique, and Australia.