Latest News

Andy Home: The fragility of the Western aluminum market is exposed by the war between Iran and ROI

The Iran War has exposed a growing vulnerability of the West's aluminium supply, a metal that is classified by the United States as a "critical manufacturing input" and by the European Union.

The London Metal Exchange's (LME) aluminium prices hit a four-year peak of $3,418 per metric ton Wednesday, after a Gulf producer, Qatalum, a joint venture between Norsk Hydro, Qatar Aluminum Manufacturing and Qatar Aluminum Manufacturing started shutting down their smelter, and another, Aluminium Bahrain, declared force majeure.

The closure of the Strait of Hormuz, which is still in place, risks further disruption of a regional hub of production that provides 23% of non-Chinese supplies.

High inventories and excess capacity in China have historically protected the aluminium market from such unanticipated supply shocks. Producers would increase run-rates when they saw prices rising.

China has no spare capacity and the inventory cover is much lower. This makes the market more vulnerable to disruptions like those currently occurring in the Middle East.

DWINDLING STOCKS

Daily stock reports from the LME show that aluminium is leaving LME warehouses at Port Klang in Malaysia, at a rate of 2,000 tonnes per day since January.

No one has really paid attention.

LME Aluminium stocks have lost much of their power as a signal over the past 10 years, as traders and banks competed for metal in order to lock in lucrative warehouse deals.

The resultant churn of metal moving in and out the LME's system of warrants obscured any reading through to what was going on in the physical supply chains.

The daily stock noise is a ruse to hide the steady depletion from a 3 million-ton mountain of aluminium at the beginning of the decade.

The combined registered and off warrant stocks reached 583,000 tonnes in February, the lowest since the LME began publishing off-warrant stock figures in 2020.

A significant portion of the remaining stocks is Russian aluminum, which made up 58% of the warranted stock at the end January.

This is not very useful to most Western buyers. The U.S., Britain and EU banned the importation of Russian metals in 2024 in order to prevent Moscow from financing its war in Ukraine.

The amount of metal that can be used in the LME is much smaller than the headline figure suggests.

CHINA HITS BRAKES

The change in stock dynamics reflects the profound structural changes that have occurred in the aluminium supply landscape.

The Chinese government has mandated a maximum annual production capacity of 45 million tonnes.

According to the International Aluminium Institute, Chinese production growth has slowed down from 4% to 2% in 2018. Smelters produced 44,5 million tons of aluminium annually in December.

China's trade relationship with the rest is changing due to the production slowdown.

Chinese manufacturers are importing more metals, especially from Russia. According to World Bureau of Metal Statistics which uses official customs data, the world's biggest producer imported a total of 2.5 million tons of primary metal last year, including just over one million tons of unwrought aluminum.

China is exporting less semimanufactured goods such as sheet, tube and foil. In 2025, outbound shipments dropped by almost 10% on an annual basis, which is equivalent to a loss of nearly 600,000 tonnes in the Western market.

Other words, China imports more aluminum metal and exports fewer finished goods, tightening Western supplies at both ends.

FLAT-LINING

Western smelters are even less flexible than their Chinese counterparts.

According to IAI, production outside China was flat last year.

The price of energy is the main problem, as it is a key cost component for the electrolytic melting process.

The U.S., Europe, and Asia have a lot of idle smelter capacities, but they need to compete for limited long-term energy supplies with other sectors.

High power prices are continuing to put a strain on existing plants. South32 has placed its Mozambique Smelter under care and maintenance after failing to negotiate a financially viable power contract.

The Iran War is a major threat to the West's ability for longer-term supply.

NEW VOLATILITY

Aluminium is an essential part of our modern lives. It's used everywhere from cars to homes and food packaging.

The energy transition is also a key issue.

In 2020, the World Bank recognized aluminium as an "impactful" and "crosscutting" material in all existing and future green energy technologies.

It is a metal that faces ever greater price volatility, as the global markets emerge from a period of "surplus" to one in which supply appears more problematic and stock levels are lower.

The war in Iran is a warning for an important metal.

Andy Home is a journalist. This column is a favorite of yours? Open Interest (ROI), a data-driven, thought-provoking commentary on the markets and finance is available at Open Interest. Follow ROI on LinkedIn, X and X.

Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.

(source: Reuters)