Aluminium jumps as Iran conflict puts Middle East supply at risk

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NEW YORK – Aluminium rallied on concerns that a critical supply route for Middle Eastern producers will be disrupted by conflict in a region responsible for a significant chunk of global output. 

The metal advanced 1.7 per cent to settle at US$3,194.50 a tonne on the London Metal Exchange (LME) – the highest since January.

Roughly 150 ships are stranded around the Strait of Hormuz, the key shipping artery between points in Asia and Europe, after the commander of Iran’s revolutionary guards told state television on March 2 that any ship that attempted to transit the strait would be set on fire. Most of the aluminium produced in the Middle East is exported to the United States and Europe.

The Middle East accounts for about 9 per cent of the world’s aluminium production capacity, according to consultancy AZ China, and prices typically have been sensitive to spikes in regional tensions.

Aluminium is a highly versatile, lightweight, and corrosion-resistant metal used in transportation (aircraft, cars, ships), construction (window frames, cladding, roofing), and packaging (cans, foil, pharmaceutical blister packs). Due to its electrical conductivity and durability, it is also essential for power transmission lines, machinery, and consumer electronics like smartphones.

Emirates Global Aluminum (EGA), the United Arab Emirates’ top producer, operates smelters in Dubai and Abu Dhabi, while Aluminium Bahrain runs one of the world’s largest single-site smelters.

The UAE confirmed over the weekend that debris from an aerial interception caused a fire at one of the berths at Jebel Ali port in Dubai, several kilometres from EGA’s facility.

Potential disruptions to bauxite or alumina flows that feed smelters in the Middle East present a very significant risk, said Chaos Ternary Futures head of research Li Xuezhi.

Aluminium price spreads also tightened on March 2, with spot contracts rising to trade at a premium to later-dated futures on the LME, a condition known as backwardation that signals spot demand is exceeding supply.

Rio Tinto Group also suspended negotiations with Japanese clients over second-quarter aluminum supply, citing US and Israeli strikes against Iran.

The miner – a top aluminium supplier thanks to smelters in Canada and Australia – initially had offered to supply customers in Japan at a premium of US$250 a tonne over LME prices, but subsequently withdrew the offer, according to people familiar with the negotiations.

That initial offer was already the highest since at least 2015, according to two of the people.

Last week, the aluminium market was gripped by options trades with a notional value of several billion dollars that appeared to be wagers on a major shortage of the metal. The call options – which give holders the right to purchase at a predetermined price and time – focused on April contracts targeting a price of US$3,300 to US$3,500 a tonne. 

The Middle East war poses uncertainty for metals after a tumultuous start to 2026, fuelled by US President Donald Trump’s aggressive foreign policy, fears for the US dollar and a frenzy of speculative trading in China.

Aluminium in London spiked to its highest since 2022 in late January, while the US Mid-west premium – a key benchmark – hit a record high above US$1 a pound in February.

Mr Trump said US forces will continue bombing Iran until his objectives have been achieved, and called on the Islamic Republic’s military and police to surrender or “face certain death”.

Tehran has responded to the attacks with waves of missiles fired at neighbouring countries, including Saudi Arabia, the UAE and Bahrain – all key producers of aluminium.

Base metals markets are also contending with broader fears over the impact of the escalating Iran war on energy prices and the global economy. The US dollar rose sharply, a headwind for commodities priced in the US currency.

Aluminium smelters typically maintain around one to two weeks of alumina inventory – or more in regions with vulnerable logistics – limiting the immediate risks to production, Citigroup said.

Higher war-risk premiums, elevated freight rates and incremental shipping delays from the Gulf are the most plausible near-term effects, it said.

Iran has about 790,000 tonnes of annual aluminium smelting capacity, AZ China said in a note. Of that, 50,000 tonnes to 80,000 tonnes have already been halted as industries take precautions amid the conflict.

More stoppages may be in store if port activity is halted, the researcher said.

Meanwhile, iron ore closed 0.8 per cent higher at US$99.10 a tonne in Singapore. The Middle East is a major producer of iron ore pellets, with a 13 per cent of global share, according to BMO Global Commodities Research. BLOOMBERG