The conflicts in the Middle East are reshaping the global aluminum market landscape. The actual closure of the Strait of Hormuz has led to a severe disruption in supply, driving aluminum prices to become the strongest performer among industrial metals in this cycle. Currently, they have approached a four-year high.
Since the conflict broke out on February 28th, the price of LME's three-month aluminum futures has soared by up to 10%. As of Wednesday afternoon in London, it was trading at approximately $3,370 per ton, up by about 8% compared to before the conflict. The supply-side tension has further intensified due to the announcement by the world's largest aluminum smelting company, Alba, to reduce production. Market concerns over global supply shortages have continued to rise.
The metal industry research firm CRU Group has warned that if inventory levels continue to decline and the supply disruption in the Middle East persists, the price of aluminum is expected to rise further to $4,000 per ton.
The supply side has suffered from two simultaneous shocks.
The actual closure of the Strait of Hormuz was the core driving factor behind this round of aluminum price increase. Although aluminum is the most abundant metal in the earth's crust, it is indispensable in key sectors such as electronics, transportation, construction, photovoltaics and packaging. Any disruption in the supply side will quickly be passed on to the price.
The production cut decision made by Bahrain Aluminum Company has further exacerbated the supply shock. The company's annual production capacity is approximately 1.6 million tons. This production cut amounts to 19%, equivalent to an annualized production shortfall of about 300,000 tons, significantly intensifying market concerns over aluminum supply.
Guillaume Osouf, the chief analyst of CRU Group, pointed out in his latest report that if the overall global demand for aluminum had not been weak, the current increase in LME aluminum prices would have been much more significant. He also warned: "If the conflict continues, it will likely fundamentally change our outlook for the rest of this year's market, not only due to the lasting impact on global supply, but also possibly causing a negative drag on the demand side."
The institutions' participation was limited, and the short sellers quietly increased their positions.
Although the price of aluminum has risen significantly, the market generally believes that it is difficult to replicate the retail investment craze for silver or copper. It is reported that an analyst expressed "surprise" at the involvement of retail funds in this highly industrialized commodity.
The institutional participation was also limited. Osouf told CNBC that since the conflict began, the size of the fund's long positions has only slightly decreased compared to the end of January. In contrast, the short positions have shown more active movements - the short positions have increased by approximately 15,000 contracts. "This indicates that a significant portion of investors expect the price to fall from the current level," he added.
This position structure reflects the obvious differences in the market regarding the continuous upward trend of aluminum prices. The duration of the supply disruption will be a crucial variable determining the future direction of the market.
