Primary aluminium prices climbed to four-year highs in H1 2026 as the market grappled with tightening inventories and mounting concerns over supply disruptions linked to the conflict in the Middle East. The year began with the LME Aluminium Cash Price below USD 3000 per tonne and, over the next five months, rose by approximately 29.1 per cent to reach USD 3,855 per tonne on June 2. As tensions escalated, the Strait of Hormuz-one of the world's most important shipping routes faced significant restrictions, slowing the movement of cargoes across global supply chains. Delays in shipments and uncertainty over future deliveries heightened concerns among consumers and traders, who increasingly turned their attention to available inventories.
This was reflected in inventory levels. LME Aluminium Stocks started the year at around 509,275 tonnes and gradually moved lower as H1 2026 progressed. After remaining above 400,000 tonnes in the early months of the year, stocks declined through March, April and May before reaching 319,500 tonnes by mid-June.
The lack of significant new stock inflows, coupled with concerns over future supply availability, kept aluminium prices elevated during the period.
However, now the market narrative is changing after the US and Iran signed a preliminary agreement aimed at ending the Gulf conflict. Delayed cargoes and raw material shipments may begin moving more freely, potentially easing supply concerns.
The change in sentiment was immediately visible in prices, with the LME aluminium cash price falling below USD 3,500 per tonne on 15 June 2026, the day the agreement was announced, and continuing to weaken as confidence in future supply availability improved. Explore- Most comprehensive and forward-looking industry-focused report — Global Bauxite & Alumina Market Forecast to 2036: Supply–Demand, Trade Flows & Price Outlook
How different was the market from last year?
The shift from 2025 to H1 2026 was substantial.
In 2025, aluminium prices were considerably lower than those recorded in H1 2026. Compared with H2 2025, the highest LME aluminium cash price rose by 29.9 per cent from USD 2,968 per tonne to USD 3,855 per tonne, while the lowest increased by 17.3 per cent from USD 2,545 per tonne to USD 2,986 per tonne. The contrast was even more pronounced against H1 2025, with the highest cash price up 40.8 per cent from USD 2,737 per tonne and the lowest up 30.7 per cent from USD 2,285 per tonne.
A similar trend was observed in the LME Aluminium 3-Month Price. Compared with H2 2025, the highest 3-Month Price increased by 25.5 per cent from USD 2,990 per tonne to USD 3,752.5 per tonne, while the lowest rose by 18.2 per cent from USD 2,547 per tonne to USD 3,010.5 per tonne. Against H1 2025, the highest 3-Month Price was up 37.9 per cent from USD 2,721 per tonne, while the lowest increased by 29.4 per cent from USD 2,327 per tonne.
What do inventories reveal about underlying market conditions?
LME aluminium inventories also recorded a sustained decline throughout H1 2026. Month-end stocks fell from 495,725 tonnes in January to 465,550 tonnes in February (-6.1 per cent), before declining further to 416,775 tonnes in March (-10.5 per cent), 367,050 tonnes in April (-11.9 per cent), and 338,000 tonnes in May (-7.9 per cent).
The downward trend continued into June, with inventories reaching 319,500 tonnes by June 15, representing a further 5.5 per cent decline from end-May levels and on June 17, inventories stood at 316,525 tonnes .
The decline becomes even more significant when viewed against previous periods. In 2025, inventory levels were consistently higher than those seen in H1 2026. Compared with H2 2025, the highest LME aluminium stock level declined by 8.7 per cent from 558,050 tonnes to 509,275 tonnes, while the lowest inventory level fell by 8.4 per cent from 348,625 tonnes to 319,500 tonnes.
The gap was even wider against H1 2025, when the highest stock level stood at 634,650 tonnes, 19.8 per cent above the H1 2026 peak, while the lowest inventory level was 336,900 tonnes, 5.2 per cent higher than the H1 2026 low.
The persistent decline in stocks suggests that aluminium demand remained firm throughout the period, while supply availability remained constrained, which led to LME aluminium prices reaching four-year highs during the first half of 2026.
What caused the sharp rise in aluminium prices?
.Hormuz disruption tightened supply chains
The aluminium market's performance in H1 2026 was shaped largely by the geopolitical crisis in the Middle East, which disrupted one of the industry's most important trade routes. The closure of the Strait of Hormuz created an immediate supply shock, raising concerns over the movement of aluminium, alumina and bauxite across global supply chains. As uncertainty over material availability increased, buyers rushed to secure supplies while traders built a significant geopolitical risk premium into aluminium prices.
The region's importance to the global aluminium industry made the disruption particularly impactful. The Middle East accounts for around 9 per cent of global primary aluminium production, while Gulf Cooperation Council (GCC) countries produced approximately 6.159 million tonnes of primary aluminium in 2025, representing about 8.35 per cent of global supply. More than 5 million tonnes of aluminium pass through the Strait of Hormuz each year, making it a vital link between producers in the Gulf and consumers across Asia, Europe and North America. It supplies 19 per cent of EU primary aluminum imports, 20 per cent -21 per cent of US imports, and 28 per cent of Japan imports.
So, if we estimate the volume of aluminium that could have been available for export during the period, it can be assessed using GCC production and export trends. GCC aluminium production declined from around 500,000 tonnes in January to 330,000 tonnes in April, representing a 34 per cent reduction. The month-on-month decline between March and April was approximately 29 per cent; applying a similar trend suggests that May production may have been around 300,000 tonnes.Based on these estimates, total GCC aluminium production for the March-May period would be close to 1 million tonnes.
Given that GCC producers typically export around 70 per cent of their output, the region's potential export volume over the three months is estimated at approximately 700,000 tonnes which was potentially stuck due to Hormuz closure .
The vulnerability extended beyond finished metal shipments. Approximately 75 per cent of Gulf smelters depend on alumina and bauxite cargoes transiting through Hormuz, while nearly 20 per cent of US aluminium imports originate from the Gulf region. Consequently, the disruption affected both exports and raw material supplies, tightening market availability and contributing to the rise in aluminium prices during H1 2026. Explore- Most comprehensive and forward-looking industry-focused report — Global Bauxite & Alumina Market Forecast to 2036: Supply–Demand, Trade Flows & Price Outlook
.Energy and logistics costs added pressure
The supply concerns were compounded by a sharp increase in production and transportation costs.
Aluminium is often described as "solid electricity" because producing one tonne of primary metal requires approximately 13,000–18,000 kWh of electricity, making energy the industry's largest cost component. Electricity typically accounts for around 30-40 per cent of total production costs, meaning fluctuations in energy markets are quickly reflected in aluminium prices.
During 2026, European gas prices reportedly increased by around 50 per cent, rising from approximately EUR 30/MWh to EUR 46/MWh. This pushed electricity costs for aluminium producers from around USD 600–900 per tonne to approximately USD 1,470–1,764 per tonne, increasing total production costs by an estimated 45–55 per cent, from roughly USD 2,250 per tonne to around USD 3,117 per tonne.
With smelters consuming approximately 14,000–15,000 kWh per tonne of aluminium produced, even relatively modest increases in power prices had a significant impact on operating costs.
At the same time, logistics became more expensive. War-risk insurance premiums for vessels crossing the Gulf increased from roughly 1 per cent to between 3.5 per cent and 10 per cent of vessel value per voyage, while some insurers raised premiums substantially or withdrew coverage altogether.
To avoid the region, many vessels diverted around the Cape of Good Hope, adding 7–9 days to transit times and extending journeys by 20–30 per cent. The longer route increased fuel consumption, with additional fuel costs for large tankers exceeding USD 300,000 per trip, while higher freight rates added further pressure to aluminium supply chains.
.China's production cap limits supply growth
Beyond the geopolitical disruptions in the Middle East, the aluminium market was already facing structural supply constraints. China, which accounts for around 60 per cent of global aluminium production, plays a critical role in balancing global supply and demand. However, the country's aluminium industry continues to operate under a 45-million-tonne annual production cap introduced in 2017 to curb overcapacity and reduce environmental pressures.
While the cap has helped prevent excessive production growth, it has also limited the market's ability to respond quickly to supply disruptions elsewhere.
Reopening agreement triggers market reassessment
Market sentiment shifted rapidly following the announcement of the preliminary agreement. On 15 June 2026, the LME aluminium cash price fell to USD 3,359 per tonne, its lowest closing level since 27 March 2026.
The market reaction was logical. Producers such as Alba in Bahrain and EGA in the UAE had already experienced operational disruptions following infrastructure damage and interruptions to alumina supply chains, while port closures and force majeure declarations had reduced refined metal availability. Those factors had helped drive aluminium to a four-year high.
The prospect of shipping routes reopening and supply chains gradually normalising prompted traders to reassess risk premiums that had been built into aluminium prices.
Additional supply expectations have also emerged from Indonesia. Several Indonesian producers are seeking LME brand registration, while new smelting projects continue to ramp up production. These developments are expected to increase deliverable metal availability over time, although their impact on near-term supply conditions is likely to remain limited.
Following the Hormuz agreement, expectations of aluminium prices exceeding USD 4,000 per tonne have become less likely. Instead, prices are increasingly expected to remain within a range of approximately USD 3,000-3,600 per tonne in H2 2026. Explore a comprehensive and forward-looking industry-focused report — Global Bauxite & Alumina Market Forecast to 2036: Supply–Demand, Trade Flows & Price Outlook
Recent trading patterns also indicate improving market sentiment. Since June 15, the LME Aluminium 3-Month Price has moved above the LME Aluminium Cash Price, shifting the market from backwardation into contango.
The key question now is no longer whether supply disruptions will intensify, but whether the reopening of the Strait of Hormuz can restore enough supply confidence to prevent another sharp rally in aluminium prices.
Note: This is exclusive coverage by AL Circle and may not be reproduced, republished or shared without prior permission.
