Aluminum Faces Worst Monthly Collapse Since 2008 as Middle East Supply Tensions Ease

Aluminum is on track to record its most severe monthly decline since 2008, rapidly erasing gains from a previous conflict-driven rally as expectations grow for the restoration of Middle Eastern supply. The industrial metal has fallen by more than 15% during June, influenced by an interim diplomatic agreement between the United States and Iran that has generated optimism regarding a resumption of shipments through the reopening Strait of Hormuz. This downturn has completely reversed the price increases accumulated over the prior three months, which had been triggered by supply disruptions in a region that commands nearly 10% of total global aluminum output.

A combination of record-high export volumes from China and successful maritime transits through the strait to restock essential alumina reserves has accelerated this market reversal. Over the past two weeks, the aluminum market has transitioned into a contango structure—a condition where immediate spot prices are lower than longer-dated forward contracts—indicating that immediate supply anxieties have diminished. Industry analysts note that physical premiums outside of China decreased sharply following reports of the truce, signaling that near-term availability is no longer constrained. This rapid price correction has generated a degree of market panic and caught numerous market participants off guard, leading some regional investors to anticipate further downward price adjustments. Additionally, the broader metals complex, including aluminum, has faced headwinds from a strengthening US dollar since mid-May, which elevates purchasing costs for international buyers, while expectations of prolonged restrictive monetary policy by the Federal Reserve continue to cloud the macroeconomic demand outlook.

In recent trading on the London Metal Exchange, aluminum edged up 0.5% to $3,103 per ton, leaving its monthly deficit at 15.4%. Other commodities displayed mixed movements, with copper advancing 0.4% to $13,332 per ton—marking a 2.2% decline for June—and iron ore easing 0.1% to $98.75 per ton in Singapore trading. Meanwhile, zinc increased by 0.2% to $3,482 per ton following reports from the state-backed research institution Beijing Antaike Information, which indicated that major Chinese smelters intend to reduce their zinc concentrate consumption by 600,000 to 1 million tons this year to mitigate financial losses. However, market analysts suggest that this anticipated reduction in refined zinc output, which equates to roughly 200,000 to 300,000 tons or up to 4% of China's prior-year production, remains insufficient to fully offset the existing domestic supply surplus for the year.