Middle East Geopolitical Conflict Drove a Sharp Surge in Aluminum Prices, and Aluminum Prices Are Expected to Hold Up Well in the Short Term [SMM Aluminum Price Weekly Review]

SMM News on March 5:

Macro perspective:Domestically, the CPC Central Committee Political Bureau meeting discussed the draft outline of the 15th Five-Year Plan, emphasizing the need to continue implementing a more proactive fiscal policy and a moderately accommodative monetary policy, focus on building a strong domestic market, and accelerate the cultivation and expansion of new momentum. Overseas, the escalation of the conflict in the Middle East lifted risk-off sentiment, the US dollar index strengthened, and there remained significant uncertainty over the US Fed’s plan to cut interest rates. US Fed’s Kashkari said that if inflation cools, it may be appropriate to cut interest rates one to two more times later this year; US Fed’s Williams said he still believed the US Fed’s policy rate was slightly above the neutral rate. However, as the trajectory of the Middle East situation remained unclear, uncertainty increased over the production and transportation of aluminum industry-related products.

Fundamentals:

Supply side, new aluminum projects in China, Indonesia, and Angola continued ramping up, but as the geopolitical conflict in the Middle East escalated, production or shipments at some aluminum smelters had already been affected, and daily average production was expected to decline. Iran, one of the centers of the conflict, had annual aluminum production of over 600,000 mt; Qatar Aluminium initiated a shutdown due to a suspension in natural gas supply and was expected to complete it by month-end March, involving capacity of 636,000 mt; Aluminium Bahrain maintained production, but with hindered transportation under the impact of the geopolitical conflict, it was temporarily unable to deliver normally and had announced force majeure affecting the performance of supply contracts; in 2025, Aluminium Bahrain’s production reached 1.622 million mt. In addition, the Mozambique aluminum smelter previously announced it was expected to enter maintenance shutdown on March 15 due to power contract issues; there had been no update to the plan, involving capacity of 580,000 mt.

Demand side, after the holiday, as downstream players gradually resumed work, demand recovered and the proportion of liquid aluminum rebounded significantly. According to data as of this Thursday, the weekly proportion of liquid aluminum rebounded by about 8 percentage points WoW. Weekly downstream operating rates rose further. Specifically, delivery expectations for power grid orders in March were clear, and demand for aluminum wire and cable recovered well; demand for products such as can stock, autos, and battery continued to recover, driving a recovery in demand across related segments; the recovery in construction demand was relatively slow; starting April 1, export tax rebates for PV products will be canceled, and the PV industry’s relatively high operating rate was expected to continue through month-end March.

Inventory, as demand remained in the recovery stage, casting ingot output in March was expected to stay at a high level. Coupled with volumes not yet warehoused and some finished product inventories at aluminum smelters not yet shipped to social warehouses, the domestic aluminum ingot social inventory buildup trend was expected to continue in the short term, and the post-holiday peak was still expected to reach 1.35-1.4 million mt.

Overall, although domestic social inventory continued to build up, the current Middle East geopolitical situation remained a key focus globally. If the geopolitical conflict persists, expectations for global aluminum supply tightens would be strong, and aluminum prices had strong upward momentum. In the short term, aluminum prices are expected to hold up well. The most-traded SHFE aluminum contract is expected to trade in the range of 24,300-25,500 yuan/mt next week, while LME aluminum is expected to trade in the range of $3,250-3,450/mt.

Notably, LME aluminum has shifted to a backwardation structure, and aluminum is currently the only base metal product showing a backwardation structure. According to the latest data, the LME Cash-3M price spread turned positive, reaching $1.91/mt. Overseas aluminum semis supply is expected to tighten in the short term, and there is a chance that the export window for aluminum semis under Ordinary Trade in China may turn to open.

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