LME aluminum has come off sharply from its June 1 four-year high of $3,795.50 per metric ton, retreating to around $3,400 as hopes flickered for a US-Iran peace deal that could restore Gulf production. The $297-per-ton decline in eight trading sessions — a 7.8% drop — was the fastest correction in aluminum since the initial war shock. But the price remains 12% above the pre-conflict level of $3,121 set on February 26, and the physical supply picture has not improved one bit.
The two smelter outages that ignited the rally are still with us. Emirates Global Aluminium's Al Taweelah smelter in Abu Dhabi, which produces roughly 1.4 million tonnes per year before the incident, suffered damage that the company estimates will take up to a full year to fully restore. Aluminium Bahrain (Alba), with annual capacity of 1.6 million tonnes, remains partially suspended. Together, these two facilities represent approximately 3% of global primary aluminum capacity — a loss that, in a balanced market, would be enough to swing it decisively into deficit.
LME warehouse inventories tell the story. Opening stocks on June 11 stood at 322,000 tonnes, down from 337,700 on June 1 and a staggering 31% below the 469,550 tonnes recorded on the eve of the conflict in February. The cash-to-three-month backwardation that peaked at $110 per tonne on June 1 has collapsed to near flat — not because supply improved, but because speculators unwound war-premium positions. The physical draw on metal continues.
The backwardation collapse is worth understanding in detail. A backwardation — where spot metal trades at a premium to futures — signals immediate physical shortage. The $110 backwardation on June 1 was a market screaming for metal. Its collapse to $3 suggests the panic has subsided, but it does not mean aluminum has become abundant. It means traders are no longer paying a premium for immediate delivery because they have accepted that no immediate delivery is available at any price. The metal simply is not there.
China's aluminum sector adds a separate structural dimension to the tightness. The country's 45-million-tonne-per-year capacity cap, imposed in 2017 as part of supply-side reform, is now binding. China produced 45.02 million tonnes in 2025 according to National Bureau of Statistics data, effectively at the ceiling. With domestic demand absorbing nearly all output, Chinese net exports of primary aluminum have fallen by 700,000 tonnes year-on-year according to ING. The world's swing producer can no longer swing. Every new tonne of demand must be met by production growth outside China, and the Gulf outages have removed exactly that capacity.
ING's aluminum analysts forecast a market deficit that will support prices through 2026, noting that even before the Gulf disruptions, the market was heading toward balance after years of surplus. The China cap, combined with rising demand from electrification — aluminum content per vehicle continues to rise as automakers lightweight their fleets — was already tightening the market. The Iran war turned a gradual tightening into an acute shortage.
Goldman Sachs, which had forecast an aluminum surplus for 2026/27 before the conflict, has not publicly revised its outlook since the Gulf outages, but its pre-war model already pointed to a market where surplus was fragile. The LME three-month price, which traded at $2,717 in Goldman's pre-war analysis, illustrates how far the market has repriced: at $3,400, aluminum is 25% above where the most bearish major bank thought it would be.
Aluminum procurement teams should disregard the price pullback from $3,795 — it is a speculative unwind, not a supply recovery. The two largest smelter outages in the Gulf have zero confirmed restart dates. EGA says "up to a year" and Alba has not issued a timeline. Until those smelters resume production, the market is operating with roughly 3% of global capacity offline. That is the difference between a balanced market and a deficit large enough to draw inventories to critically low levels. Buyers should take three actions now. First, lock Q3 and Q4 volumes at current prices around $3,400. The next geopolitical headline — a breakdown in US-Iran talks, a wider regional escalation — could push prices back above $3,800 within days. Second, audit your supply chain for exposure to Gulf-origin metal. If your contracts source from EGA or Alba via traders, demand transparency on force majeure clauses and alternative supply options. Third, evaluate whether your China-based suppliers are offering metal at competitive premiums. China's export surplus has shrunk by 700,000 tonnes year-on-year; the metal that is available is increasingly staying in Asia. For European and North American buyers, securing regional supply — Canadian, Russian (sanctions permitting), and scrap-based — should be a priority before the deficit deepens further.