Aluminum prices extended their decline on Thursday as supply concerns from the Gulf of Hormuz eased following diplomatic signals from regional stakeholders. COMEX aluminum posted its largest single-day drop of the year, falling 7.7% to $3,716.75/mt. The decline accelerated in afternoon trading as algorithmic selling kicked in below the $3,800 support level.
The Hormuz risk premium, which had added an estimated $500/mt to aluminum prices during the peak crisis period in late May, has now largely unwound. Analysts estimate approximately $150/mt of residual premium remains, reflecting the possibility of renewed tensions. The market is refocusing on fundamentals: ample LME inventories at 498,250 tonnes and moderating demand growth.
LME three-month aluminum settled at $3,797/mt, down 3.1% on the day. The LME cash-to-three-month spread shifted to a contango of $12/mt, signaling easing nearby tightness. This is a marked reversal from the $40/mt backwardation seen during the peak crisis week.
Physical aluminum premiums in Europe fell sharply, with the duty-paid premium dropping to $235/mt over LME cash from $380/mt last week. US Midwest premium declined to $0.24/lb from $0.31/lb. The normalization reflects both easing supply fears and weaker near-term demand.
The aluminum risk premium unwind presents a buying opportunity. Procurement teams that deferred purchases during the Gulf crisis should enter the market now, as the remaining $150/mt premium may fully dissipate. Fixed-price Q3 contracts at current levels offer value versus the $4,000+ peaks of late May. Maintain flexibility for further downside to $3,400-3,500/mt.