London metals index at record high amid aluminium supply squeeze fear

Industrial metals posted notable gains on the London Metal Exchange (LME), taking the index to an all-time high amid growing concerns over the availability of aluminum following recent disruptions in key production and distribution areas caused by the war in Iran.

The LME tracks six primary base metals and has risen almost 12% over the past four weeks, closing at its highest level on record on Thursday.

Aluminum, which has the largest weighting in the index and makes up 75% of the benchmark along with copper, has risen about 15% since the start of the Iran war.

The conflict in the Middle East has led to direct Iranian attacks on aluminum facilities, including strikes on smelters in Abu Dhabi and Bahrain. The blockade of the Strait of Hormuz has also contributed to stifling global supply.

These events reduced raw material movements and forced operational adjustments. Even with indications of a potential de-escalation, the physical effects and logistical hurdles suggest that production losses could continue for some time.

Buyers in Europe and North America, already facing sanctions against some suppliers and trade limitations elsewhere, are now competing more intensely for available materials, which has contributed to tighter inventories and higher premiums.

This development highlights the speed with which geopolitical events can reshape commodity flows and prices. With the Middle East contributing around 9% of global aluminum production, sustained pressure on regional production poses obvious challenges.

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JPMorgan Chase has warned that the aluminum market is heading towards a metaphorical “black hole” due to the scale of supply losses.

In an analysis released this week, the bank highlighted a dramatic escalation in disruption that could create a severe and prolonged deficit, marking one of the largest imbalances in recent memory relative to overall market size.

The assessment reinforced expectations of further price strength in the coming months, with traders banking on limited relief in the near term.

Copper provided additional boost to the LME thanks to increased buyer interest, particularly from Asian industries that are most affected by disruptions in the Strait of Hormuz.

While the movements of other metals within the index were more restrained, the combined influence of aluminum and copper was the main driver of this record.