Aluminum prices have climbed for seven consecutive trading sessions as the prospect of a swift reopening of the Strait of Hormuz dims, heightening concerns that Middle Eastern supply will remain constrained for the foreseeable future. Data shows that London Metal Exchange (LME) aluminum futures rose as much as 1%, reaching their highest level since June 23. As of the time of writing, LME aluminum futures were trading at $3,336.25 per ton.

On August 10, Iranian Foreign Ministry Spokesperson Nasser Kanaani stated that the United States' naval blockade and military actions against Iran are the main obstacles to fully restoring safe navigation through the Strait of Hormuz. In a press conference that day, Kanaani noted that the current situation in the strait is not caused by differences between Iran and Oman. The two countries have reached a preliminary consensus on a temporary commercial shipping route and are continuing consultations on parts of a joint statement. Kanaani emphasized that as long as the US does not cease its naval blockade and military operations, conditions for the full and safe resumption of traffic through the Strait of Hormuz cannot be met.

Concurrently, US President Donald Trump has presented Iran with a new set of broad demands on Monday, including compensation for deaths resulting from US actions against Iran. These conditions are likely to be rejected by Tehran. The hardening of positions on both sides suggests that reaching an agreement to reopen the Strait of Hormuz could involve a protracted process, which has further dampened market hopes for a normalization of Middle Eastern aluminum supply.

At the onset of the Middle Eastern conflict, aluminum prices surged sharply before retreating as the US and Iran began negotiations. However, prices have since resumed their upward trend. Since the end of June, aluminum prices have risen by more than 8%. The broader base metals market, including aluminum, has also strengthened as negotiations to end the war between the US and Iran remain deadlocked and investors reduce their bets on US interest rate hikes.

Aluminum inventories in LME warehouses have been declining steadily this year, now approaching 250,000 tons, the lowest level since November 1990, despite increasing new supply from China and Indonesia. Major European aluminum producer Norsk Hydro ASA warned last month that if trade transportation through the Strait of Hormuz cannot return to normal, the global aluminum market's annual supply deficit could expand to over 900,000 tons. Prior to the US-Iran conflict, the Middle East accounted for nearly one-tenth of the world's aluminum production.

One market participant noted, "The negotiations in the Middle East are not progressing smoothly, which should provide some support for aluminum prices." During the previous Middle Eastern conflict, Iran launched direct strikes on two key smelters in Abu Dhabi and Bahrain, causing irreversible capacity losses and leading to a significant downward revision in global aluminum supply expectations. Bernstein analyst Bob Brackett previously pointed out that the Middle Eastern conflict has damaged related facilities in the region, removing approximately 3% of global aluminum supply from the market. UBS expects global aluminum supply to grow by only 0.3% in 2026, down from its previous forecast of 2.4%.

Compared to pre-conflict forecasts, production estimates for the Middle East have been sharply lowered, with losses exceeding 3 million tons. More critically, the path to restarting production remains highly uncertain, depending on the duration of the conflict, the timeline for infrastructure repairs, the normalization of logistics, and the replenishment of raw materials. Citigroup noted in a previous report that the likelihood of a rapid V-shaped recovery in Middle Eastern aluminum supply is extremely low. The bank added that the losses are difficult to compensate for because the global aluminum system's supply elasticity has been nearly exhausted.

Citigroup stated that after years of supply-side reforms in China, aluminum capacity is effectively capped, preventing a rapid release of incremental supply. Outside of China, most profitable global capacity is already operating at full capacity. Indonesia is one of the few regions capable of providing meaningful incremental supply, but its expansion progress and timing face execution and ramp-up risks. Meanwhile, aluminum producers in Europe and the US are experiencing slow restarts and capacity additions due to power supply issues.

Furthermore, Citigroup's base-case forecast indicates that even under a weak demand scenario, the aluminum market could face a supply deficit of approximately 2.7 million tons in 2026. The bank also noted that aluminum inventories were already at their lowest levels in 55 years before the Middle Eastern conflict. While hidden inventories, financing stocks, trader stocks, and pipeline inventories can still quietly absorb the supply deficit for a period, continued declines in inventory will fundamentally change the market structure. Aluminum inventories are not only a physical buffer but also a source of embedded short hedges tied to extensive financing and calendar spreads. As inventories fall, these short positions are gradually unwound, shrinking the market's embedded short base.

JPMorgan previously pointed out that once a supply gap is formed by damage to key smelting capacity, the market cannot quickly return to equilibrium even if geopolitical tensions ease marginally and logistics improve. Iran's direct strikes on the two key smelters in Abu Dhabi and Bahrain have escalated what might have been considered a "short-term transportation disruption" into a substantial loss of smelting capacity. JPMorgan added that the extremely low supply elasticity in the aluminum sector gives this crisis significant path dependency. Aluminum smelting is not a typical commodity business where "higher prices lead to immediate supply recovery." When a smelter shuts down, restarting often involves extremely high capital, energy, equipment, and process restart costs, which are technically far more complex than the market imagines. As a result, capacity restoration is typically measured in years, not weeks or months.