Why Aluminum Prices Continue to Rise
The current aluminum price spike is being driven much more by supply disruption than demand growth. Middle East Supply Shock (Largest Driver) The biggest catalyst has been the conflict involving Iran and the Gulf states. Major smelters such as Emirates Global Aluminum and Aluminum Bahrain have suffered production disruptions, while shipping through the Strait of Hormuz has been severely affected. The Gulf region accounts for roughly 9% of global primary aluminum production and more than 20% of non-Chinese supply. Aluminum Is Already a Tight Market Even before the Middle East issues, global inventories were relatively low, and analysts were forecasting a deficit market for 2026. Unlike many commodities, aluminum production cannot be increased quickly because smelters are: A smelter outage can take months or even years to fully recover from. Energy Costs Electricity can represent 30–40% of the cost of producing primary aluminum. Rising natural gas and power prices have increased production costs globally and discouraged some higher-cost smelters from operating at full capacity. U.S. Tariffs and Regional Premiums The U.S. 50% tariff on imported aluminum has significantly increased domestic premiums. Even though LME aluminum may trade around $3,600–3,700/ton, U.S. consumers are paying substantially more after premiums and tariffs are added. Strong Demand Remains Demand has not collapsed despite higher prices: Financial and Speculative Buying Commodity funds and industrial buyers are building inventories because they fear further shortages. This creates a feedback loop: The extremely high premium for immediate delivery versus future delivery suggests that the physical market is genuinely tight. What This Means for Extruders For aluminum extruders, the key issue is not just the LME price. Aluminum Cost = LME Price + Midwest Premium + Tariffs + Freight Today, all four components are under pressure, which is why billet and extrusion costs are rising so sharply. My view is that the market is now trading on a geopolitical risk premium. If the Strait of Hormuz reopens fully and Gulf production stabilizes, aluminum could pull back. However, if outages continue through the summer, prices above $3,500/ton may become the new normal because there is very little idle Western smelting capacity available to replace the lost supply.