Benchmark aluminum futures on the London Metal Exchange tumbled 4.4% on Monday to settle at $3,379.50 per metric ton, marking the metal’s weakest close since March 27, as a tentative US-Iran deal cleared the path for renewed metal shipments through the Strait of Hormuz and erased geopolitical supply risk premiums overnight.
Washington and Tehran have hammered out a framework interim agreement slated for formal signing this Friday to reopen the vital waterway, with finer operational terms still under negotiation. Donald Trump confirmed on social media Sunday that he had authorized toll-free navigation across the strait, while Iran’s Fars News Agency cited an insider that the transit window would last only 60 days. Even with the limited validity and lingering uncertainty among shipowners awaiting full protocols to gauge voyage safety, traders priced in eased supply disruptions, triggering an immediate selloff in aluminum contracts.
Prior tensions in the Middle East had severely disrupted global aluminum flows. The region supplies roughly 10% of worldwide primary aluminum, yet local smelters sustained repeated missile strikes, and the strait’s closure choked inbound raw material deliveries as well as outbound finished metal cargoes. Regional output sank 35% year-over-year in April. Though producers rerouted logistics to sustain plant operations, the sector remained trapped in a structural supply deficit. The prospect of unblocked maritime routes now stoked market fears of a flood of idle Middle Eastern aluminum inventories, compounded by new smelting capacity ramping up in Indonesia, creating clear near-term headwinds for aluminum prices.
Wall Street metals analysts uniformly flagged downside pressure for the lightweight metal over the short run. Bank of America’s team led by Michael Widmer noted that fading supply threats paired with muted demand sentiment left aluminum with limited upside potential. The bank also warned that expanded output from China, the world’s top aluminum producer, could partially offset production losses across the Middle East. Gregory Shearer, JPMorgan’s head of base and precious metals research, added that aluminum’s tight correlation to energy prices meant the strait’s reopening would likely spark an abrupt knee-jerk price decline.
Still, analysts did not write off long-term bullish fundamentals for aluminum. A material global supply shortfall persists across the market, with the trajectory of inventory drawdowns set to steer price direction. Should off-exchange invisible stockpiles be fully depleted and visible exchange inventories keep shrinking, aluminum would regain solid support for a rebound.
Monday’s base metals complex displayed stark divergence. All other LME industrial metals closed higher alongside aluminum’s slump: copper edged up 0.3%, while tin surged 2.9%. Pre-market US mining equities mirrored this split sentiment. Aluminum producers lagged, with Alcoa falling 3.1% and Century Aluminum down 3.6%. Copper miners outperformed broadly: Ero Copper rose 3.8%, Taseko Mines climbed 4.1%, Hudbay Minerals advanced 4.3%, Teck Resources gained 4.6%, while Rio Tinto, BHP and Vale booked modest gains of 1.5%, 1.7% and 2% respectively.
Within China’s domestic market, aluminum exports surged once regional hostilities erupted, yet domestic output has since hit government-imposed production caps. Local manufacturers have drawn down both exchange-monitored stocks and private off-market inventories, and this destocking cycle looks set to persist if Middle Eastern shipping logistics fail to recover as quickly as traders anticipate.
