Since April, the geopolitical conflict in the Middle East has led to damage to aluminum production capacity and a shortage of alumina supply, LME aluminum inventories are at historical lows, and superimposed demand continues to grow, and the aluminum price center is expected to continue to rise.
On the supply side, the geopolitical conflict in the Middle East has exposed the vulnerability of overseas electrolytic aluminum supply chains to a certain extent. According to SMM statistics, the output of electrolytic aluminum in the Middle East is expected to be 6.848 million tons in 2026, and geopolitical conflicts will lead to a decrease in production capacity in the Middle East by about 2.16 million tons/year, accounting for 7% of the total overseas production capacity. If the aluminum plants that gradually reduce their burden due to the supply of raw materials are included, the actual affected production capacity is larger. More importantly, the resumption cycle of electrolyzers is usually 6 to 12 months, and the cost of restarting is high, which means that even if the geopolitical situation eases in the short term, electrolytic aluminum production cannot immediately return to pre-conflict state.
The blockade of the Strait of Hormuz has led to poor alumina shipments. According to Aladdin's statistics, the alumina production capacity of the five countries in the Middle East is about 4.65 million tons, and the regional (Gulf countries) self-sufficiency rate is only 34%, only some aluminum plants in Iran and Saudi Arabia can achieve complete self-sufficiency, and the rest of the aluminum plants have a demand gap of about 9 million tons per year, basically relying on imports from Australia and India through the Strait of Hormuz. Although it is possible to alleviate the pressure of supply cuts through Saudi Arabia's local capacity adjustment, small replenishment of alternative routes in the Red Sea or Oman, and consumption of inventory, it can only make up for the demand gap of about 1.15 million tons throughout the year, and the pattern of alumina supply under demand has intensified. As inventories are gradually depleted, more aluminum plants will be forced to reduce their load and operate. Data released by the International Aluminum Association on April 20 has verified this trend: primary aluminum production in the Gulf region fell 6% in March compared to February.
In terms of inventory, from the perspective of overseas observable LME inventories, overseas aluminum inventories of less than 500,000 tons have been at a historical low. As an important "reservoir" for regulating supply and demand, inventory will undoubtedly amplify supply disturbances when its capacity drops to a low level. At the same time, due to the capacity ceiling limit, the current capacity utilization rate of electrolytic aluminum in China exceeds 98%, and there is no room for further improvement, and it is difficult for exports to grow significantly. In addition, in 2026, China's annual new production capacity of electrolytic aluminum will only be about 750,000 tons.
On the demand side, the development of new energy and AI industries has driven continuous growth. At present, the demand growth engine of the global aluminum market has switched from the traditional real estate industry to the new energy and AI industry. During the 15th Five-Year Plan period, the State Grid and China Southern Power Grid are expected to invest more than 5 trillion yuan, an increase of about 40% over the 14th Five-Year Plan period, and 5 new lines may start construction during the year. Most of the transmission lines in the United States were built in the 60s of the last century, and it is difficult to bear the dual pressure of AI data centers and new energy grid connection. In March 2026, the U.S. Department of Energy launched the SPARK program to accelerate the upgrading of the domestic power grid, and related investments will continue to increase over the next five years. At the same time, the AI computing power race is competing with electrolytic aluminum production for power resources - a single ton of aluminum consumes more than 13,000 kWh, while the rigid load of data centers has pushed up marginal electricity prices, and high-cost aluminum production capacity has accelerated its withdrawal, supporting aluminum prices from the cost side. In addition, geopolitical conflicts have forced the acceleration of global new energy penetration: the blockade of the Strait of Hormuz has made energy independence a rigid demand of all countries, and the export of aluminum-intensive products such as photovoltaic brackets and energy storage shells is expected to increase. The price ratio of copper and aluminum has hit a new high since 2003, and aluminum has opened up new demand growth space in the fields of new energy vehicle wiring harnesses and charging piles.
On the whole, the geopolitical conflict in the Middle East has caused about 2.16 million tons/year of electrolytic aluminum production capacity to be damaged, the blockade of the Strait of Hormuz has cut off the main import channel of alumina in the Middle East, and the LME aluminum inventory is at a historical low, and the global aluminum supply shortage is difficult to change in the short term. Domestically, the capacity ceiling has suppressed the space for production increase, the supply elasticity of electrolytic aluminum has been greatly reduced, and the growth of power grid investment, the transformation of old power grids in Europe and the United States, the withdrawal of high-cost production capacity, and the accelerated penetration of global new energy have driven the continuous growth of demand. However, the squeeze of high aluminum prices on downstream profits and the inventory of about 1.45 million tons of domestic aluminum ingots will still suppress the upward space of prices in the short term.
