Aluminum price set for biggest weekly gain since 2023 on Iran crisis

Aluminum recorded its biggest weekly gain since 2023 after the deepening conflict in the Middle East snarled shipments from the region and left traders bracing for more disruptions.

Prices on the London Metal Exchange climbed more than 4% on Friday, extending this week’s advance to about 9.7%. Earlier in the week, the benchmark contract spiked to levels last seen in 2022.

Now in the seventh day, the US-Israeli attacks on Iran — and Tehran’s response — have sent shock waves through the global aluminum industry. Metal flows through the strategic Strait of Hormuz are effectively halted, and smelters in the Persian Gulf region have reported disruptions to deliveries and production this week.

The turmoil underscores how quickly geopolitical risks can ripple through a market already grappling with constrained supply. Metal inventories on major exchanges remain relatively lean, while a regulatory cap on Chinese aluminum output and smelter outages in Western markets have limited the industry’s ability to respond to fresh shocks.

The so-called US Midwest premium, the amount added to LME prices to deliver aluminum to that region, rose to a fresh high of $1.075 a pound Friday, according to Fastmarkets Ltd. European premiums also surged this week.

The Chinese aluminum industry — by far the world’s biggest — is considering how to respond to any prolonged disruptions. There’s potential for China to plug emerging supply gaps, especially if global output of semi-fabricated aluminum starts to be affected.

“Gulf producers are among the largest suppliers of primary aluminum to the global seaborne market, accounting for a significant share of internationally traded metal,” analysts at ING said in an emailed note, warning that a sustained disruption on shipments could push prices above $4,000 a ton. “While oil and LNG markets are the most directly exposed to disruptions in the Strait of Hormuz, aluminum is likely to be among the most affected industrial commodities.”

Part of the price advance on Friday may be due to a huge options trade. April-expiry options with a notional value of several billion dollars have rapidly come into the money this week on the London Metal Exchange, with dealers identifying the massive position as a call spread targeting a price of between $3,300 and $3,500 a ton. Dealers and traders in the LME market have said the trade is likely to have been placed by a deep-pocketed hedge fund, with the upfront cost estimated at about $40 million.

(By Jessica Zhou and Martin Ritchie)