Aluminium rises above $3,300 as Hormuz impasse puts supply under pressure

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Aluminium prices have climbed to their highest level since June as stalled US-Iran talks over the Strait of Hormuz raise fresh concerns about supply, while global inventories remain near their lowest level in decades.

Aluminium is climbing again, and this time the market's attention is firmly back on the Strait of Hormuz.

The latest rise comes as negotiations between the US and Iran over reopening the key shipping route appear to have stalled, raising concerns that disruptions to aluminium supplies from the Middle East could last longer than previously expected.

LME aluminium futures rose 1 per cent on Monday, August 10, reaching their highest level since June 23. The metal was trading at around USD 3,337 per tonne on Tuesday, August 11, up 0.6 per cent at 13:15 Shanghai time.

The move marks another leg higher for aluminium after prices gained more than 8 per cent since the end of June.

Why is Hormuz so important for aluminium?

The Strait of Hormuz is one of the world's most important shipping routes, and its disruption has implications well beyond oil.

Before the war, the Middle East accounted for around 10 per cent of global aluminium production. Any prolonged difficulty moving material through the region could therefore tighten an aluminium market that is already dealing with historically low inventories.

The latest concern is that the US and Iran remain far apart in their negotiations.

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US President Donald Trump has put forward new demands on Iran, including compensation for people killed by Tehran, while Iran has reiterated its own requests for reparations.

With neither side appearing ready to compromise quickly, expectations of an immediate reopening of the Strait have weakened.

“Negotiations in the Middle East are not proceeding smoothly, which should provide some support for aluminium prices,” said Yan Weijun, head of nonferrous metals research at Chinese trader Xiamen C&D Inc.

Aluminium inventories leave little room for disruption

The supply concern becomes more significant when looking at aluminium stocks.

Inventories held in London Metal Exchange warehouses have fallen steadily this year to around 250,000 tonnes, their lowest level since November 1990.

That leaves the market with a much smaller inventory cushion if Middle Eastern supply disruptions continue.

China and Indonesia have been adding new aluminium supply, but those additional tonnes have not prevented LME stocks from falling to historically low levels.

For aluminium buyers, producers and traders, that is an important signal: there may not be much spare material available if supply disruptions become more prolonged.

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Could the global aluminium deficit widen?

The longer the disruption continues, the greater the potential impact on the global aluminium balance.

Major European aluminium producer Norsk Hydro warned last month that the global aluminium supply shortfall could exceed 900,000 tonnes this year if trade through the Strait of Hormuz is not normalised.

Aluminium prices initially surged when the war began before retreating as the US and Iran moved towards negotiations. But as hopes for a quick resolution have faded, prices have started climbing again.

The metal has now gained more than 8 per cent since the end of June, showing how quickly market expectations have shifted.

For now, the aluminium market is caught between two opposing forces.

On one side, new supply from China and Indonesia could help ease some pressure. On the other, Middle Eastern supply remains vulnerable while the Strait of Hormuz stays disrupted, and global inventories are already sitting at their lowest level in more than three decades.

A quick reopening of the Strait could ease some of the supply fears that have pushed prices higher. But if the impasse continues, an already thin inventory cushion could leave the aluminium market increasingly exposed to further disruptions.

For now, the message from the market is pretty clear: when inventories are this low, even the possibility of losing another major source of aluminium supply can move prices quickly.

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