Despite the impact of the U.S.-Iran conflict—which led to attacks on aluminum smelters in the Gulf region and disruptions to shipping in the Strait of Hormuz, affecting nearly 3 million tons of global aluminum capacity—international aluminum prices have not sustained an upward trend.
On October 15, the three-month aluminum futures price on the London Metal Exchange (LME) hovered near $3,000 per ton—a level comparable to that seen before the U.S. and Israel launched military operations against Iran in February 2026.
The market is currently betting that increased aluminum production from Indonesia, combined with higher exports of aluminum alloys and semi-finished products from China, will be sufficient to bridge the supply gap until Gulf-based smelters are repaired and shipping routes are fully restored.
However, relatively stable prices do not mean that supply chain pressures have vanished; the physical market continues to grapple with low inventory levels, high regional premiums, and ongoing logistical bottlenecks.
Data from the International Aluminium Institute indicates that between February and May of this year, the annualized production of primary aluminum in the Gulf region fell by 2.8 million tons. Key factors included the forced suspension of operations at the Al Taweelah smelter (owned by Emirates Global Aluminium), damage to facilities at Aluminium Bahrain (Alba), and logistical challenges faced by other producers in the region.
As facilities undergo repairs and production gradually resumes, regional output has begun to recover. Nevertheless, the annualized production figure for August stood at 3.5 million tons—still 2.6 million tons below pre-conflict levels—signaling that the supply recovery remains incomplete.
China and Indonesia have emerged as vital contributors to filling the supply void. While exports of primary aluminum from China are constrained by a 30% export tariff, the country’s exports of aluminum alloys doubled year-on-year to 349,000 tons between January and August 2026. Meanwhile, exports of semi-finished aluminum products—such as plates, sheets, and strips—increased by 774,000 tons, reaching a total of 4.46 million tons. Meanwhile, new smelting capacity in Indonesia—developed with the participation of Chinese enterprises—is ramping up rapidly; in July, primary aluminum exports reached 114,000 tonnes, setting a new monthly record.
Previously, about half of Indonesia’s aluminum exports were destined for China. Following the outbreak of the conflict involving Iran, export destinations have expanded to include markets in Asia, Europe, and even the United States, leading to a more diversified supply distribution.
Improved supply in Asia has caused spot premiums to retreat from their June highs, though regional disparities remain significant. Japanese buyers have agreed on a premium of $255 per tonne for fourth-quarter deliveries—a 35% decline from the previous quarter, yet still higher than the $200-per-tonne level seen when the conflict involving Iran first began.
In Europe, the premium for duty-paid aluminum has climbed to $559 per tonne—double the level recorded at the end of February. The premium in the U.S. Midwest is even higher, reaching $2,312 per tonne, largely driven by the 50% import tariff imposed by the Trump administration.
Tight inventories pose a potential market risk. LME-registered stocks have fallen to 238,625 tonnes—the lowest level this century—with the bulk of the remaining stock consisting of Russian-origin metal, which makes it less attractive to many Western buyers.
Off-exchange warrant inventories have also continued to decline, currently standing at just 73,509 tonnes—the lowest level since the LME began publishing this data in 2020.
Although the spread between spot prices and three-month futures has narrowed significantly from the June peak of over $100 per tonne, spot prices have recently edged back above three-month futures, signaling that near-term supply remains tight.
Overall, increased production and exports from China and Indonesia have temporarily cushioned the impact of supply disruptions in the Gulf, keeping aluminum prices relatively stable; however, risks to the supply chain have not been entirely eliminated. As long as production capacity in the Gulf has not fully recovered and uncertainties persist regarding transport through the Strait of Hormuz—compounded by low exchange inventories—physical aluminum premiums and near-term price spreads are likely to remain under pressure; the apparent stability in the global aluminum market masks underlying structural tightness.
