Aluminium prices rose on Monday and briefly neared $3,500 per tonne on the London Metal Exchange, amid growing supply risks in the Middle East. Aluminium was on track for a 10% monthly gain.
Emirates Global Aluminium reported damage at its Abu Dhabi smelter, while Aluminium Bahrain said it is assessing the impact at its site. Iran’s Revolutionary Guard said the facilities were targeted in retaliation for US‑Israeli strikes.
The two smelters represent about 3.2 million tonnes of annual capacity, and extended outages could tighten supply further. Restarting smelters can be costly and time-consuming.
Supply in the Gulf had already been tightening before the latest incidents. Recent curtailments at Aluminium Bahrain and reduced operations at Qatalum have affected about 560,000 tonnes of annual capacity, equal to roughly 8–9% of regional supply.
With aluminium prices pushing towards $3,500/t on the LME, our immediate focus should be on bullish strategies. The escalating supply risks from the Middle East are the primary driver for this rally. We see this as a clear signal that the market is tightening significantly.
The potential disruption of 3.2 million tonnes of annual capacity is a serious threat to global supply. This figure represents over 4.5% of the world’s primary aluminium production outside of China, making any prolonged outage highly impactful. This comes on top of previous regional curtailments, compounding the supply deficit.
For the coming weeks, we should consider buying call options to capitalize on further upside potential. Long positions in LME aluminium futures contracts also offer direct exposure to the rising spot price. The fundamental driver is strong, as restarting damaged or idled smelters is an expensive and slow process that takes months, not weeks.
Implied volatility will be high, so we need to manage our risk carefully. Using bull call spreads could be a prudent way to limit the upfront cost of premiums while still maintaining a bullish outlook. This strategy helps define our risk in a market that is likely to see sharp price swings.
Looking back from our perspective in 2025, we remember a similar price surge in early 2022 when geopolitical events sent LME aluminium above $3,800/t. The current situation mirrors that supply-shock environment, suggesting prices have more room to run. The market has a clear precedent for reacting strongly to the removal of significant production capacity.
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