The impact of the conflict between the United States and Iran on the price of aluminum

The conflict between the United States and Iran has had a significant impact on aluminium prices. The short-term effect is a sharp increase, the medium-term is a fluctuation at a high level, and in the long term, it returns to the fundamentals. The core factor is the combined effect of supply shock, cost increase, and low inventory. The elasticity of aluminium prices is significantly stronger than that of other metals such as copper.

1.Core impact mechanism (Triple shock)

Supply side: Directly Hitting the “Choke point” of the Global Aluminum Industry.

Capacity concentration disrupted: The total electrolytic aluminium production capacity of six countries in the Middle East (Iran, Qatar, Saudi Arabia, the United Arab Emirates, Bahrain, and Oman) is approximately 7 million tons, accounting for 9% to 10% of the global total. Iran’s own 804000 ton production capacity (approximately 630000 tons per year) was directly affected.

Transportation route blocked: The Strait of Hormuz is the sole main channel for the import of aluminium raw materials (alumina) in the Middle East and the export of aluminium ingots. The self-sufficiency rate of alumina in the Middle East is only 33%, with an annual shortage of approximately 9 million tons. Iran’s self-sufficiency rate is only 20%, with 80% of its needs relying on imports. The blockage in the strait will result in “raw materials not being able to enter and finished products not being able to be transported out”, directly causing a global supply gap.

2.Cost aspect: Dual factors of energy and logistics have driven up costs.

Electricity costs are soaring: Electrolytic aluminium is a high-energy-consuming industry, with electricity accounting for 35% to 50% of the cost. The conflict has pushed up the prices of crude oil and natural gas, directly raising the global average cost of smelting.

Logistics costs have soared: Ships have taken longer routes around the Cape of Good Hope, with the voyage lengthened by 10-15 days. Freight and insurance costs have also risen significantly, further driving up the landed price of aluminum ingots.

Market sentiment: Hesitant funds have poured in. The escalation of conflicts has triggered panic over supply disruptions, and funds have rushed into long positions in aluminium futures, amplifying price fluctuations.

• Subsequent trend assessment (by scenario)

Scenario 1: Conflict intensifies (medium probability)

Aluminum price rapidly exceeds $3,300 – $3,500 per ton, with domestic price ranging from 24,000 – 25,000 yuan per ton, fluctuating at a high level.

Key risks: Complete blockade of the strait by Iran, large-scale shutdown of aluminum factories in the Middle East.

Scenario 2: Localized conflict, with basic channel unobstructed (high probability)

Aluminum price fluctuates within the range of $3,000 – $3,300 per ton, while in China, it is $22,500 – $24,000 per ton.

Supporting factors: Low inventory, high energy costs; Pressing factors: China’s production capacity is close to full capacity, and traditional demand is weak.

Scenario 3: Rapid Resolution of Conflict (Low Probability)

Aluminum price rapidly drops, erasing the conflict premium and returning to the range of 21,000 – 22,500 yuan per ton.

IV. Key Indicators for Observation

Navigation Rate of the Strait of Hormuz: Whether ships are taking alternative routes, changes in insurance rates.

Aluminum Plant Operating Rate in the Middle East: Whether production is reduced or halted in countries such as Iran, the United Arab Emirates, and Saudi Arabia.

Global Aluminum Inventory: Weekly changes in inventories at LME, Shanghai Futures Exchange, and bonded areas.

Energy Prices: Trends of Brent crude oil and natural gas prices.