Aluminum prices continue to rise? Supply disruptions persist fermenting, Middle East's largest aluminum producer EGA suspends partial deliveries due to "force majeure".

The largest aluminum producer in the Middle East, Emirates Global Aluminum (EGA), has invoked force majeure and suspended the delivery of at least some aluminum materials, after one of its smelters was shut down due to an attack by Iran. Earlier, during the war between the US and Iran, Iranian missiles and drones attacked EGA's smelter in Al Taweelah in early April, leading to the company halting operations. The facility is one of the largest aluminum plants globally, with an aluminum production target of 1.6 million tons by 2025. As a result of this news, concerns about a global aluminum supply shortage have escalated sharply. London Metal Exchange (LME) aluminum futures prices rose 1.6% on Friday, closing at $3498.50 per ton, up 0.8% for the week and marking the third consecutive weekly increase. Since the outbreak of the Iran war at the end of February, LME aluminum futures prices have surged significantly. Analysts warn that with the continued blockage of the shipping chokepoint of the Strait of Hormuz, EGA's shutdown may just be the beginning of a large-scale reduction in aluminum production in the Middle East. The Middle East region's aluminum production accounts for approximately 9% of global supply, with companies like EGA playing a crucial role in supplying aluminum materials to manufacturers in Europe, Asia, and the US. Even before Iran directly closed the Strait of Hormuz (a key shipping channel), major producers in the region were already facing critical shortages of raw materials. Unless the Strait of Hormuz is reopened soon, the industry is expected to face a wave of cascading production cuts. A preliminary assessment report indicated that it would take 6 to 12 months for the smelter's primary aluminum production line to fully resume operation. During this time, EGA has even started selling some of its aluminum oxide raw material inventory, indirectly confirming the bleak reality of its prospects for short-term production resumption. The direct strike on the production facility signifies a shift in risk on the supply side from "rising transportation costs" to the substantial decrease in physical supply. Currently, the US-Iran war has entered its 42nd day, with negotiations for a ceasefire taking place in Islamabad, but the fragile foundation of trust between the two sides poses challenges. Previously, Israeli airstrikes on Lebanon led Iran to immediately close the Strait of Hormuz in retaliation. Political analysts at GEO Group Inc point out that even if a ceasefire agreement is reached, its stability is full of uncertainties, and the production and logistics environment of the Middle East aluminum industry will remain highly uncertain in the foreseeable future. Since the outbreak of the war, over 60% of the region's aluminum smelting capacity has come to a standstill. Goldman Sachs Group, Inc. urgently adjusted its supply-demand balance forecasts in its latest commodity report, drastically lowering the projected global aluminum market surplus of 550,000 tons in 2026 to a deficit of 570,000 tons. The bank indicates that the supply gap in just the second quarter could reach as high as 1.2 million tons. In addition to direct production losses, the near standstill of shipping activities in the Strait of Hormuz has intensified supply difficulties. According to shipping data monitoring, the number of vessels passing through the strait has dropped from an average of 130 per day in February to only 6 per day in March since the conflict escalated, a decrease of over 95%. Even if companies are willing to bear high war risk insurance costs, they still face the predicament of lack of available vessels. This situation has caused a "double squeeze": on one hand, critical raw materials like aluminum oxide cannot be transported in, threatening the raw material supply of other operating aluminum plants in the Middle East; on the other hand, finished aluminum materials cannot be shipped out, as described by EGA, even with a large metal inventory during shipping, they cannot deliver on time to customers. Against the backdrop of Middle East conflicts disrupting global supply chains, the impact continues to escalate, putting pressure on aluminum prices in the US market. Insiders have revealed that Rio Tinto plc Sponsored ADR (RIO.US) and Century Aluminum Company (CENX.US) have recently raised premiums on key semi-finished aluminum products by around 12%. Specifically, the two companies have increased the premium on aluminum ingots by about 3 cents per pound (about $110 per ton), significantly higher than pre-conflict levels. Meanwhile, Rio Tinto plc Sponsored ADR is also pushing customers to accept multi-year contracts with higher prices. Furthermore, Goldman Sachs Group, Inc. raised its target for LME aluminum prices in the second quarter of 2026 to $3450 per ton at the end of March, and warned of the risk of short-term pulse-like price increases if supply disruptions in the Middle East region continue to widen.