Gulf Disruptions Raise Aluminum Prices to Four-Year High

Aluminum prices have surged to a four-year high following severe disruptions in the Gulf region, where major smelters have declared force majeure and the Hormuz chokepoint has been blocked for much of this week. ZeroHedge reported that these events are creating one of the largest supply shocks in base metals markets since 2000.

The Gulf region accounts for 9% of world aluminum supply, and alumina flows through the Hormuz chokepoint remain heavily constrained.

Analysts at Mercuria, a Swiss commodities trading house based in Geneva, are warning about the global aluminum market. Mercuria traders sell, ship, store, and finance physical commodities across markets such as oil, gas, power, LNG, and metals. The firm estimates the aluminum market could face at least a 2 million-ton deficit by the end of the year, potentially worse if the US-Iran conflict drags on and alumina flows through Hormuz chokepoint remain heavily constrained.

A commodities analyst at Mercuria told Reuters that the scale of the supply shock in the aluminum market is probably the largest single supply shock a base metals market has suffered in the post-2000 era. The analyst spoke to Reuters on the sidelines of the Financial Times Commodities Global Summit in Lausanne, Switzerland. He stated, 'We are already in a 'black swan' event.'

That shortfall compares with about 1.5 million tons of visible inventory and just over 3 million tons of total global stock, including non-visible units. He warned that the most exposed supply chains to the Gulf shock are in the US and Europe. These regions rely heavily on Middle Eastern aluminum imports and already have low stockpiles.

JPMorgan analysts warned last week that the aluminum market is descending into a black hole, or a metaphorical point of no return, where the global aluminum market will face a serious and prolonged supply outage. ZeroHedge reported that traders and analysts at Mercuria, JPMorgan, and Goldman are warning of a metal supply shock.

This follows the recent constraints in the Gulf, which have intensified market pressures.

A commodity specialist at Goldman recently warned clients, 'Hard to think of a bigger metal supply shock: High degree of expectation this was where it was heading, but the initial reaction was to fade the uncertainty yesterday. ' The warnings from these institutions underscore the potential for broader impacts on global supply chains.