The global aluminium market is once again considering the impact of a disruption or even full stoppage of shipping through the strait of Hormuz following the start of a new US/Israel-Iran conflict, and aluminium prices rose this morning in anticipation of such an interruption.
The strait of Hormuz connects the Mideast Gulf to the Arabian sea, and is the only shipping route available to aluminium producers in the UAE, Bahrain, Saudi Arabia and Qatar. Companies such as Aluminium Bahrain (Alba) and Emirates Global Aluminium (EGA) depend on the route for exports of aluminium to global buyers and deliveries of bauxite and alumina raw materials from suppliers in nations such as Guinea and Brazil.
The UK Maritime Trade Operations (UKMTO) reported that explosive projectiles have hit three ships near the strait of Hormuz since Sunday. The UKTMO earlier reported that multiple vessels operating in the region had received radio transmissions stating that the strait had been closed, although these reports were unverified. A transmission shared with Argus stating that the strait was closed was said to have been broadcast from an Iran-flagged vessel, but coastal state sovereignty cannot be used to bar the passage of ships.
Nevertheless, the question now is whether ship operators will be willing to take the risk, with multiple vessels now said to be idling in the region.
Should the worst market fears be realised and the strait is closed to shipping, it will cut off aluminium exports from Middle East producers as well as much of their raw material supply. Gulf Co-operation Council (GCC) nations produced around 6.2mn t of aluminium last year, according to the Intranational Aluminium Institute. Iran adds about 600,000 t/yr from smelters including Salco, Iralco and Al-Mahdi, according to the Iranian Mines and Mining Industries Development and Renovation Organisation.
The GCC region exports more than 80pc of its output and around 30pc of that goes to Europe and 20pc to the US. This accounts for around 10pc of Europe's aluminium imports and more than 20pc of the US'. The resulting impact on prices and premiums in these regions would be significant.
Premiums would also rise in Asian countries that import aluminium from the Middle East. In Japan, which imports 500,000 t/yr of aluminium from the Middle East, one major aluminium producer has withdrawn its first second-quarter main Japanese port premium offer of $250/t, citing potential supply disruption from the Iranian conflict and expected upside premium volatility in the coming weeks caused by supply constraints and rising freight insurance costs.
Aluminium and related feedstock shipments between Asia and Europe are unlikely to be significantly affected by the conflict as that trade has already been largely routed away from the Red Sea due to the risks posed to vessels in that region over recent years.
An Asian seller said cargoes bound for Europe are loading as scheduled, with traders and smelters continuing to book bulk carriers on Friday last week and today in Asia. Shipments from Asia to Europe are mostly routed around the Cape of Good Hope, with very few considering the Red Sea despite reports of Chinese vessels passing safely, sellers said. European buyers generally reject the Red Sea route.
A lengthy disruption affecting Hormuz would also lead to production curtailments in the Mideast Gulf. The region's producers are heard to be holding between two weeks and two months of raw material supply.
This threat to supply and overall output comes just as the global aluminium market is already facing a tight supply outlook with Chinese production approaching its capacity cap of 45mn t/yr, and many other regions facing declining production due to challenges in securing affordable power contracts.
Aluminium prices have already reached four-year highs in 2026 as the supply outlook has tightened. The London Metal Exchange (LME) cash select price gained 3.8pc in electronic trade this morning to hit $3,230.50/t as of 12:43 GMT.
A full closure of the strait of Hormuz is still considered unlikely, but delays to some extent are already occurring to shipping across multiple industries.
