Aluminum Prices Hit 4-Year High! Middle East Conflict Cuts Supply, Analysts Eye $4,000 Mark

What market expectations are reflected by short sellers increasing their positions when aluminum prices rise?

The Middle East conflict is reshaping the global aluminum market landscape. The actual closure of the Strait of Hormuz has caused severe supply disruptions, driving aluminum prices to become the strongest performer among industrial metals in this cycle, currently approaching a four-year high.

Since the conflict erupted on February 28, the three-month aluminum futures price on the London Metal Exchange (LME) has surged by up to 10%. As of this Wednesday afternoon, it closed at about $3,370 per ton, an increase of approximately 8% from before the conflict. Tensions on the supply side have intensified further after the announcement of production cuts by Bahrain Aluminum (Alba), the world’s largest aluminum smelter, fueling ongoing concerns about global supply shortages.

Metal industry research firm CRU Group warns that, if inventory levels continue to decline and Middle Eastern supply disruptions persist, aluminum prices could further climb to $4,000 per ton.

Supply Side Faces Double Impact

The actual closure of the Strait of Hormuz is the core driver behind this round of aluminum price increases. Although aluminum is the most abundant metal in the Earth’s crust, it is indispensable in key sectors such as electronics, transportation, construction, photovoltaics, and packaging. Any supply interruption in these areas quickly transmits to price increases.

Bahrain Aluminum’s decision to cut production has further amplified the supply shock. The company’s annual capacity is about 1.6 million tons, and this cut amounts to 19%, creating an annual shortfall of roughly 300,000 tons, significantly heightening market concerns over aluminum supply.

CRU Group chief analyst Guillaume Osouf pointed out in a recent report that, if global aluminum demand were not generally weak, LME aluminum prices should be rising more sharply. He also warned, “If the conflict persists, it is highly likely to fundamentally change our outlook for the rest of the year, not only due to the lasting impact on global supply but also potentially exerting negative pressure on demand.”

Limited Institutional Participation, Short Sellers Quietly Increasing Positions

Despite the significant price rally, the market generally believes it is unlikely to replicate the retail investment frenzy seen in silver or copper. One analyst expressed surprise at retail funds entering this highly industrial commodity.

Institutional participation is also limited. Osouf told CNBC that since the conflict began, fund long positions have only slightly decreased since the end of January. In contrast, short positions have become more active — increasing by about 15,000 lots. “This indicates that a considerable portion of investors expect prices to retreat from current levels,” he added.

This positioning structure reflects clear market divergence on whether aluminum prices will continue to rise. The duration of supply disruptions will be a key variable in determining the market’s future direction.