Geopolitical tensions in the Middle East are introducing new uncertainties for the global metals market, particularly aluminum. A recent webinar, hosted by Shanghai Metals Market (SMM), outlined how developments around Iran and the strategic shipping corridor of the Strait of Hormuz could disrupt raw material flows, increase logistics costs, and tighten global supply.

Asia dominates global aluminum production 

Speaking at the webinar, Sibyl Yang, Senior Nickel Analyst at SMM, began by outlining the structure of the global aluminum industry. In 2025, global operating capacity for primary aluminum was estimated at 75.1 million tonnes, with China dominating production. China alone accounts for roughly 59% of global output, making it the world’s largest producer. Other major producers include Canada, Russia, India, Australia, and Brazil, she said. Regionally, Asia holds nearly 77% of global aluminum capacity, a share expected to rise further as new projects come online, particularly in Indonesia, where government policies encouraging downstream processing and restricting bauxite exports are attracting significant investment. 

Chinese companies are increasingly backing these projects, positioning Indonesia as one of the key sources of future aluminum capacity growth.

Looking ahead to 2026, Yang expects global operating capacity to increase by about 1.61 million tonnes.

China will contribute roughly 920,000 tonnes, mainly through capacity replacement and upgrades, as strict national capacity caps limit further expansion.

Outside China, new capacity of around 690,000 tonnes is expected, with Indonesia again playing a major role. Additional projects are also planned in Angola and Vietnam, while production cuts may occur in Mozambique and Qatar due to energy supply disruptions linked to regional tensions. 

The strategic importance of the Strait of Hormuz 

At the heart of current concerns is the Strait of Hormuz, one of the world’s most critical energy and commodity shipping routes. Any disruption to the strait could affect both raw material imports and aluminum exports from the Middle East, a region that plays a key role in global aluminum production. Yang noted that several regional smelters face varying levels of risk depending on their proximity to potential conflict zones and their reliance on imported raw materials.

Middle East smelters face different risk levels 

Among the facilities already affected, Qatar Aluminium (Qatalum) has faced potential production disruptions due to natural gas supply challenges. Meanwhile, Aluminium Bahrain (Alba) has suspended shipments as exports must pass through the Strait of Hormuz, though production continues for now. In Iran, smelters located near the strait face higher risks from both logistics disruptions and potential security threats.

Other regional producers have different exposure levels: The United Arab Emirates is highly dependent on imported bauxite, making it vulnerable to shipping disruptions. While Oman faces relatively lower risks because its ports are located outside the Strait of Hormuz, and Saudi Arabia and Turkey benefit from integrated supply chains with domestic upstream resources.

Three potential supply shock scenarios

Yang outlined three possible scenarios that could reshape the global aluminum balance.

Scenario 1: Limited disruptions
If the Strait of Hormuz remains open but Iranian smelters face interruptions, the global aluminum market could experience a shortage of around 475,000 tonnes, although current inventories could partially cushion the impact.

Scenario 2: Partial blockade of the Strait of Hormuz
If shipping routes are disrupted for an extended period, regional aluminum production could drop significantly. This scenario could result in a global deficit of about 2.44 million tonnes, pushing prices sharply higher.

Scenario 3: Severe disruption and smelter shutdowns
If the strait remains blocked and Iranian smelters shut down entirely, the global market could face a shortage of nearly 3 million tonnes, a level that existing inventories would struggle to cover.

In such a situation, Yang warned, aluminum prices could surge dramatically as supply shortages ripple across global markets.

Even before the worst-case scenarios materialise, the market is already showing signs of tightening.

Inventory levels in warehouses registered with the London Metal Exchange have declined, particularly for non-Russian aluminum.

At the same time, premiums for physical aluminum have surged. In Asia, spot premiums have climbed from around $200 per tonne to nearly $350 per tonne, reflecting tighter supply and strong buying interest from both Asia and Europe.

China’s market diverges from global trends 

Interestingly, China’s domestic market tells a different story. According to Yang, higher inventories and weaker demand have kept Chinese aluminum prices relatively subdued compared with international benchmarks. This divergence is expected to continue, with the price ratio between the London Metal Exchange and Chinese markets weakening as global geopolitical risks drive volatility in international markets.

While the ultimate impact will depend on how geopolitical developments unfold, Yang emphasised that the aluminum market is entering a period of heightened uncertainty. If tensions escalate or shipping routes are disrupted, supply shortages could rapidly drive prices higher. However, if logistics routes reopen and production stabilises, premiums and prices could quickly retreat.