Aluminum prices surged to a four-year high on Thursday as traders weighed the prospect of tighter supplies if diplomatic talks between the U.S. and Iran lead to changes in shipping through the Strait of Hormuz.
On the London Metal Exchange, the benchmark three-month aluminum contract was last up 0.5% at $3,636.60 per metric ton by 06:47 ET (10:47 GMT), marking its highest settlement level since March 2022. In China, a widely traded aluminum futures contract on the Shanghai Futures Exchange ended daytime trading up 2.9% at 25,635 yuan per ton, its strongest showing since March 9.
Market analysts have signaled a potentially large supply shortfall this year. JPMorgan Chase analysts expect a primary aluminum deficit of 1.9 million tons in the current year, which they describe as the largest since 2000. The bank's forecast reflects an estimated loss of 2.4 million tons of supply from the Middle East.
Physical inventory trends have reinforced concerns about tighter availability. Stocks held at LME-approved warehouses and at three major Japanese ports have declined, and Chinese onshore inventories have fallen as well amid expectations of increased overseas orders for Chinese aluminum.
Equity market movements among U.S. producers reflected the bullish tone in metal markets. Shares of Alcoa and Century Aluminum were modestly higher in premarket trading.
Geopolitical developments underpinned much of the market's reassessment of supply risk. Washington and Tehran have agreed in principle to hold additional talks after an initial round of negotiations last weekend in Pakistan did not produce an immediate agreement. Officials say the two sides have not set a date or venue for the next meeting. A fragile ceasefire in the region is scheduled to expire on April 21.
Separately, U.S. leadership has indicated that talks between Israel and Lebanon are expected to occur later today, though no further details were provided. Israel has confirmed that discussions will take place, while Lebanon was reported as being unaware of the scheduled talks.
Despite these diplomatic steps, tensions in the Middle East persist. The United States has maintained a naval blockade of Iranian ports, a point of contention that drew a warning from a senior Iranian military commander urging Washington not to continue the blockade. U.S. Central Command has stated that no Iranian-linked commercial vessels or oil tankers have evaded the blockade.
With inventories declining, analyst forecasts pointing to a notable primary aluminum deficit, and geopolitical risks remaining unresolved, markets are pricing a tighter supply outlook for aluminum in the near term.