Op-Ed: Aluminum’s calm belies lingering supply-chain stress
(The opinions expressed here are those of Andy Home, a columnist for Reuters)
Iranian missile attacks on Gulf smelters and the blocking of the Strait of Hormuz have knocked out almost 3 million metric tons of aluminium production capacity. Yet, eight months on, the market is seemingly unconcerned.
Indeed, London Metal Exchange (LME) three-month aluminium CMAL3 is now trading just above $3,000 per ton, which is where it was in early February before the US and Israel unleashed Operation Epic Fury against Iran.
Traders are betting that a combination of rising output in Indonesia and higher product exports from China can tide things over until the Gulf smelters are repaired and shipping fully resumes in the Strait of Hormuz.
The surface calm, however, masks lingering stress in a physical supply chain that is still reeling from the unprecedented disruption.
Plugging the gaps
Gulf production of primary aluminium slumped by an annualized 2.8 million tons between February and May, according to the International Aluminium Institute.
The collapse reflected the forced shutdown of Emirates Global Aluminium’s Al-Taweelah smelter and damage to Aluminium Bahrain’s facility, as well as logistics problems at other Gulf operators.
Regional production has since been creeping higher as both plants undergo repairs and ramp production back up, but the August run-rate of 3.5 million tons annualised was still 2.6 million tons below pre-hostility levels.
China and Indonesia have stepped in to plug the gap.
China’s exports of primary metal are constrained by a hefty 30% export duty, but outbound volumes of alloy doubled year-on-year to 349,000 tons in the January to August period.
Exports of semi-finished products such as aluminium plate, sheet and strip surged by 774,000 tons to 4.46 million tons over the same period.
Indonesia’s new Chinese-owned smelters are also ramping up at speed. The country exported 114,000 tons of primary metal in July, a fresh monthly record.
Around half of last year’s Indonesian aluminium exports went to China but shipments since the Iran war have been dispersed across Asia, Europe and even the US.
Physical stress
Improved availability in Asia has caused physical premiums to ease from their June highs.
Japanese buyers have negotiated a fourth-quarter delivery premium of $255 per ton over the LME cash price, which marks a 35% decline from the previous quarter.
However, that’s still higher than the $200-per-ton premium that was trading at the start of the Iran war, attesting to continued tension even in this relatively well-supplied part of the market.
European buyers are paying significantly more for their physical metal.
The CME European duty-paid premium EPDc1 is trading at $559 per ton over LME cash, double the level at the end of February.
US buyers, of course, are paying more than anyone else for their aluminium with the US Midwest premium trading at an elevated $2,312 per ton over LME cash, though this is as much about President Donald Trump’s 50% import tariffs as anything else.
Low inventory
Elevated premiums are sucking available metal into the physical supply chain, leaving LME stocks at multi-year lows.
Registered inventory of 238,625 tons is the lowest level this century. Most of what remains is Russian metal, which reduces its appeal to most Western buyers.
LME off-warrant inventory has also been steadily shrinking since February and now totals just 73,509 tons, which is the lowest reading since the LME introduced this category of stocks reporting in 2020.
Time-spreads have eased considerably since June, when the cash premium over three-month metal CMAL0-3 jumped to over $100 per ton.
But there is lingering tightness in the front part of the curve. After a period of mild contango, cash has just returned to a small premium over three-month metal again.
Time-spread tension is likely to remain a feature of the London market as long as physical premiums remain so high.
The aluminium market has proved highly resilient to the sudden loss of so much production, but the stress lines are still there beneath the calm surface.
(Writing by Andy Home; Editing by Marguerita Choy)
Russian aluminium’s share of available LME stocks almost 100% in September
The share of available Russian-origin aluminium stocks in London Metal Exchange warehouses rose to almost 100% in September from 95% in August, exchange data showed on Wednesday, leaving only a tiny amount of Indian metal as an alternative.
Total available, or on-warrant, aluminium inventories 6.5% to 226,675 metric tons at the end of last month, the lowest since March 2025, as conflict in the Middle East tightens global supply.
Available Russian aluminium stocks fell by 3,425 tons to 226,625 tons last month, but their share of total rose to 99.98% as Indian stocks, the only other origin material available, dropped by 12,400 tons to just 50 tons.
Many traders have shunned Russian metal even though material produced before April 13, 2024, remains eligible for trading. Aluminium made in Russia after that date was barred from the LME warehousing system to comply with Western sanctions.
“We’ve got to a place where I think the market has accepted that the (aluminium) stocks are where they are at this very low level and the quantity that is in there isn’t really wanted,” StoneX senior metals analyst Natalie Scott-Gray said on a webinar on Wednesday.
“It’s going to take time for these stocks actually to start to increase. If we look at even the queues for materials or cancelled warrants, there’s not a lot of orders for it.”
Meanwhile, the share of Chinese-made copper in available LME copper stocks fell to 28% at the end of September from 44% the previous month.
Total available copper stocks rose to 131,450 tons from 111,175 tons at the end of August as a drop in the arbitrage to ship metal to the US COMEX exchange incentivised more deliveries on to the LME.
The volume of available Chinese copper fell by 12,125 tons to 37,275 tons, while volumes from Chile and Democratic Republic of Congo increased.
The share of Chinese-origin nickel edged down to 69% of available LME stocks at the end of September from 70% the prior month.
(Reporting by Tom Daly; Editing by Alexander Smith)
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