Aluminum prices resume decline as Middle East risks ease

Aluminum prices fell to their lowest levels in more than two months after the temporary agreement between the United States and Iran paved the way for the resumption of metal shipments through the Strait of Hormuz.

The widely used light-industrial metal dropped 4.4% to settle at $3,379.50 per metric ton on the London Metal Exchange, its lowest level since March 27.

Iran agreement

The United States and Iran have reached a preliminary agreement to reopen the Strait of Hormuz alongside the expected formal signing of the deal on Friday, although final details are still being negotiated.

The conflict with Iran caused significant disruptions to aluminum supplies after metal smelters across the Middle East were hit by missile attacks, while the closure of the strategic waterway disrupted inbound raw-material flows and outbound metal shipments to global markets.

Producers turned to alternative logistics solutions to keep operations running, but the conflict left the industry facing a substantial supply deficit.

“Aluminum prices appear vulnerable in the near term as supply risks fade while concerns over demand remain,” Bank of America analysts led by Michael Widmer said in a note.

They added that Middle Eastern production, which accounts for roughly 10% of global supply, declined 35% year-on-year in April, although part of that loss could be offset by higher output from China, the world’s largest aluminum producer.

Additional pressures on prices

The bank’s analysts also pointed to other bearish factors, including the potential release of Middle Eastern aluminum inventories if the Strait of Hormuz reopens, as well as rising supply from smelters in Indonesia.

US President Donald Trump said on Sunday that he was authorizing the reopening of the Strait of Hormuz “with no transit fees.”

However, Iran’s Fars News Agency, citing an informed source, reported that Iran would permit free passage through the strait for only 60 days.

Even so, shipowners said they need more details before assessing whether commercial navigation can safely resume, while some analysts believe the aluminum industry will continue to struggle to rebuild depleted inventories amid ongoing supply constraints.

China has increased exports since the conflict began, but producers are now facing government-imposed production caps.

Manufacturers have also been drawing down inventories held in exchange warehouses and private storage facilities, and those stockpiles are likely to continue declining as long as Middle Eastern flows remain constrained, according to Gregory Shearer, head of base and precious metals research at JPMorgan Chase.

“If the strait is reopened, we could see a sharp decline in prices because aluminum is closely tied to energy markets,” Shearer said.

“However, we still believe the market is facing a significant supply gap. The key question is how long it will take for invisible inventories to be exhausted before visible inventories begin to be drawn down,” he added.