Aluminum at $3,680 and Climbing: Inside the Iran War Supply Shock

Direct attacks on Gulf smelting capacity deepened the crisis. Iranian missile and drone strikes hit Emirates Global Aluminium's Al Taweelah plant in the UAE and the Alba smelter in Bahrain . By some estimates, the conflict has taken approximately 2.5 million tonnes of annual smelting capacity offline . Wood Mackenzie reports that Middle East disruptions now total around 3 million tonnes per annum, or roughly 4% of global supply, and expects global aluminum output in 2026 to be down 3% year-on-year .

How Large Are the Projected Deficits?

Analyst forecasts for the 2026 market deficit have been revised sharply upward since March:

• Mercuria declared the situation a "black swan" supply shock and estimates a deficit of at least 2 million tonnes by year-end — a conservative figure that assumes some near-term improvement in Hormuz flows and smelter restarts . The estimate compares against roughly 1.5 million tonnes of visible inventory and just over 3 million tonnes of total global stock .
• Wood Mackenzie forecasts a deficit of up to 3 million tonnes in 2026, and expects a large deficit to persist for at least the next 18 months .
• JPMorgan projects a 1.9 million-tonne primary aluminum deficit, driven by a 2.4 million-tonne hit to Middle Eastern supply .
• Bank of America raised its 2026 deficit forecast from 1 million to 1.5 million tonnes .

These deficits are playing out in real time in LME inventories. In March, around 40% of LME aluminum warrants were canceled — earmarked for delivery — with heavy draws concentrated at Port Klang, Malaysia . On-warrant stocks, the metal readily available to the market, are now critically low, reported at levels around 270,000 tonnes . The market has responded by flipping into a steep backwardation, an unusual condition where spot prices command a premium over futures, signaling extreme near-term tightness . The cash-to-three-month spread has widened as far as $59–$60 per tonne .

Physical delivery premiums — the surcharge buyers pay above the LME benchmark to secure metal — have rocketed. The U.S. Midwest premium is reported near $2,521 per tonne and the European duty-paid premium near $599 per tonne, both records driven by the inability to ship Gulf metal through Hormuz and a frantic scramble for alternative supply .

What Analysts Expect Next

The most bullish calls come from Citigroup, which described the current setup as the most favorable for aluminum in over fifty years and sees a "credible path" to $4,000 per tonne within three months if disruptions are sustained . JPMorgan forecasts a Q2 2026 average of $3,800 per tonne and expects aluminum to average roughly $3,500 per tonne in the second half of 2026 as structural supply constraints linger . As early as March, Argus Media was already reporting analyst views that all-time highs above $4,000 were possible .

Mercuria, Goldman Sachs, and JPMorgan have all characterized this as the largest base-metals supply shock since the year 2000 .

A Slow and Uncertain Recovery

The timeline to restore normal production is measured in months, not weeks. Industry estimates place the restart window for cold-idled aluminum pots at six to twelve months, and that assumes alumina feedstock is available . The Hormuz disruption cuts both ways: it prevents Gulf smelters from receiving alumina imports, so even undamaged plants cannot run at full capacity . Compounding the feedstock crunch, Guinea — a major bauxite source — announced it would begin controlling bauxite exports in June 2026 .

On the diplomatic front, a brief ceasefire between Israel and Hezbollah in mid-April prompted Iran to declare the Strait of Hormuz open, causing a sharp but temporary relief in commodity prices . However, the reopening has proved fragile. The ongoing Islamabad talks have not produced a durable settlement, and the strategic uncertainty continues to underpin elevated aluminum prices .

Wider Commodity Fallout

The Iran war and Hormuz crisis have rippled across global commodity markets:

• Brent crude surged past $120 per barrel after the strait was closed, with Dated Brent spiking as high as $141.37 in early April, according to Platts assessments .
• Gold vaulted from roughly $5,100 per ounce to above $5,300 in hours on February 28 . The LBMA gold price briefly hit $5,313.90 per ounce on March 2 . In April, gold consolidated near $4,768 per ounce amid ceasefire talks .
• Silver experienced violent intraday swings. It briefly spiked to $96.40 per ounce during the initial conflict shock and was trading around $75.60 in April, later clawing above $80 as peace signals emerged .
• Copper remains tight, with JPMorgan pointing to a structural supply deficit that keeps prices supported alongside aluminum .

A note on the figures: Some precise numbers appearing in market discussions — for example, an exact $3,767 four-year high, a $2,521.50 U.S. premium to the penny, or a 4 million-tonne Wood Mackenzie deficit — are not directly confirmed in the available published sources. The evidence firmly supports the broad magnitude of the moves: the four-year LME high sits closer to $3,680–$3,700, and Wood Mackenzie's most recently published deficit projection is 3 million tonnes rather than 4 million .