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Two aluminium smelters in the Gulf have reduced production within days of each other.

That should make the aluminium market pay attention.

In our previous post we discussed the unusual combination of rising aluminium prices and declining LME inventories. Since then, another development has emerged that is worth watching.

First reports indicated that Qatalum reduced production. Now Aluminium Bahrain (Alba) has reportedly initiated a controlled shutdown of Reduction Lines 1–3, representing roughly 19% of its production capacity.

This does not appear to be a technical issue, but rather a precautionary response to uncertainty around logistics and raw material flows. Much of the discussion around the Strait of Hormuz focuses on oil and gas. But for the aluminium industry this corridor is equally critical.

The Gulf region has become one of the world's key aluminium export hubs. Producers such as Emirates Global Aluminium, Aluminium Bahrain, Ma'aden and Qatalum together ship roughly 6 million tonnes of aluminium per year, which is approx. 10% of global primary aluminium production. Unlike oil, aluminium has no pipeline alternative.
It moves as ingots, billets and slabs... by ship.

When uncertainty affects a corridor like Hormuz, producers typically respond cautiously:
• slowing production where necessary
• Protecting raw material inventories
• prioritising operational stability

Which appears consistent with what we are seeing now.
One aspect often overlooked is how aluminium smelters operate. Primary aluminium production is a continuous electro-chemical process. Potlines cannot simply be switched off and on again. Once production is reduced, restarting capacity requires stabilising the process, securing raw materials and ensuring reliable energy supply. In practice, bringing capacity back online happens gradually and can take weeks or even months before a smelter returns to normal output.

For the market this has two implications.
--> In the short term, announcements like these often increase volatility. Buyers and traders may move earlier to secure material, supporting LME prices and strengthening physical premiums.
--> In the longer term, the key question is whether these adjustments remain temporary or evolve into broader supply constraints across the region.
If shipping routes stabilise and raw material flows normalise, production can usually be restored step by step and markets tend to rebalance relatively quickly.

However, if uncertainty around logistics or energy persists, the aluminium market could remain tighter for longer than expected.
Europe imports roughly 1.2–1.4 million tonnes of primary aluminium from the Middle East each year, representing a meaningful share of regional supply.
European markets are already seeing the first effects through rising LME prices and stronger regional premiums. If disruptions in the Gulf expand further, the next stage could be tighter physical availability as well.

How do you see this developing?

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The aluminium market is sending a mixed signal right now...

Prices are rising while inventories continue to fall.

At Euralco we receive daily questions from customers across Europe about the aluminium market. Because we keep explaining the same developments in calls and emails, we thought it might be useful to share a short observation here.

Looking at the latest data from the London Metal Exchange, two things stand out clearly. Aluminium prices have been trending upward in recent months, while LME inventories have declined to roughly ~450,000 tonnes.

To visualise this relationship we plotted LME aluminium prices against visible LME inventories (see chart below).

In commodity markets, this combination matters. Inventories act as the shock absorber of the system. When stocks decline, markets become more sensitive to disruptions in logistics, energy or production.

The aluminium market currently faces several sources of uncertainty.
Over the past two decades, the Gulf region has become a major pillar of global aluminium supply. Large smelters in the UAE, Bahrain, Qatar and Oman export significant volumes to Europe, Asia and North America.

Even when production remains stable, disruptions in shipping routes or insurance conditions can slow the physical flow of metal into the global system. Energy costs are another key variable. Aluminium production is extremely energy-intensive, and rising gas or electricity prices can quickly affect production economics and market sentiment.

For the coming two to three months, the most likely scenario appears to be continued volatility rather than a clear directional move. If geopolitical tensions ease and logistics normalise, aluminium prices could stabilise or soften as risk premiums unwind. On the other hand, if inventories continue to decline while energy costs and shipping risks remain elevated, prices may remain supported or move higher. Several analysts quoted in recent commodity reports have suggested that the market is currently pricing in risk rather than an actual supply disruption.

At Euralco we therefore continue to monitor four indicators closely:
• LME inventories
• physical market premiums
• logistics and shipping developments
• energy costs

Together they usually tell the real story behind aluminium prices.
As an aluminium market observer, we will continue to monitor developments and share observations when relevant.

Sources
London Metal Exchange (LME)
Westmetall aluminium market data
Reuters commodities reporting
Financial Times commodities coverage
S&P Global / Fastmarkets aluminium analysis

hashtag#aluminum hashtag#metalsmarkets hashtag#commodities hashtag#marketinsights hashtag#thepowerofaluminum

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How Trump's New 50% Tariffs Reshuffle the Global Aluminum Landscape

Since the introduction of the new tariffs, imports of primary aluminum into the U.S. have fallen by about 26%. At the same time, imports of aluminium scrap have increased by 30 to 40%.
The reason is simple: scrap metal is not covered by the levy, and American smelters pay higher prices than the rest of the world.

The result is a remarkable shift. While Midwest Premium prices rose by 164%, the U.S. smelting industry experienced a resurgence.
Companies such as Century and Alcoa restarted shut down capacity, and there is even talk of the first new aluminum smelter in the US in 45 years.

Europe – scrap loss, metal surplus

For Europe, the rate increase has the opposite effect.
Exports of European aluminium scrap to the United States increased by around 270% in 2025 – a fivefold increase compared to the previous year.
Recyclers are now warning of a shortage of secondary raw materials.

At the same time, the European market is flooded with primary aluminium that can no longer be exported to the US.
Major producers from Canada, Australia and the Middle East have diverted their deliveries to European ports, including Rotterdam.

Canada – looking for new markets

Canada, for years the main supplier of aluminum to the United States, has lost a large part of its traditional sales.
Hundreds of thousands of tonnes of Canadian aluminium are now finding their way to the Netherlands, Italy and Asia, markedly shifting the trade balance within Europe.

Middle East, South America and Asia – redistribution of flows

The effects are also significant outside North America.
Producers in the United Arab Emirates, Bahrain and Brazil are shifting their exports to Asia and Europe.
Some companies are going one step further: the Emirates Global Aluminium (EGA) announced billion-dollar investments in new smelting capacity in the US itself, to circumvent the tariff barrier.

China, on the other hand, is struggling with rising scrap prices, as U.S. buyers pay better than Chinese importers.
In India , the industry is expanding – Vedanta is increasing production at BALCO, and Hindalco is increasing output to take advantage of the changed market.

The 2025 U.S. tariff hike has not only changed the direction of global trade, but also upset the balance between primary and secondary aluminum .
The consequences – higher prices in the US, lower premiums in Europe, shifting trade routes and new investments – mark a new phase in the global aluminium industry.

Since 2005, Euralco Europe B.V. has been working as a specialised partner in high-quality aluminium solutions. Over the past 20 years, the company has developed into a reliable and established player with in-depth ability in technical consultancy, distribution, and production of (semi-)finished aluminium products.

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In the summer of 2025, Mercuria Energy Group surprised the global metals market with an unprecedented strategic move. The trading house, traditionally active in energy, occupied a dominant position on the London Metal Exchange (LME) and at its peak controlled more than 80% of all available aluminium stocks.

With a position of more than 426,000 tonnes of aluminium – accounting for almost 90% of LME stocks – Mercuria caused one of the largest concentrations in the history of the aluminium trade.

What drove Mercuria's aluminum position?

The position was based on a geopolitical investment view: the expectation that a possible peace agreement between Russia and Ukraine would lead to an easing of sanctions on Russian metals.
Of the stocks taken, approximately 228,000 tonnes were of Russian origin and the remainder mainly came from India.

In addition to physical stocks, Mercuria also built up significant long positions in LME futures contracts . This combination allowed the trading house to influence both the physical and financial markets – an approach that has rarely been carried out on such a large scale in metals trading.

Market distortions and price fluctuations

The coordinated strategy led to clear tensions in the market:

• The cash-to-three-month spread shifted to strong backwardation – a situation in which direct delivery becomes more expensive than future deliveries.

• This pricing structure made procurement planning difficult for industrial customers, especially in Asia, where regional premiums suddenly increased.

• The physical cancellation of more than 100,000 tonnes of metal in Port Klang (Malaysia) led to shortages in the spot market and disrupted supply chains.

As Mercuria began tapering from late September, the market returned to contango, indicating a recovery in supply and easing tightness.

Intervention by the LME

The London Metal Exchange responded to the exceptional market dominance with emergency measures to protect market integrity.
The fair:

• Strengthened rules on position concentration,

• Obliged dominant parties to lend metal to other market players,

• And introduced stricter limits on positions in short-term contracts.

This intervention highlights the tension between innovative trading strategies and ensuring a fair, transparent market.

Strategic repositioning

When geopolitical expectations shifted – partly due to harsh American statements about Ukrainian recapture plans – Mercuria quickly adapted its strategy.
The company sold a large part of the Russian metal and mainly retained non-Russian stocks, responding to changing market sentiments.

At the same time, Trafigura took over a large part of the vacant position, which made the market less dependent on one player, but still remained concentrated.

Structural Trends Behind the Movement

The Mercuria case reflects deeper developments in the aluminium world:

• Chinese production caps are limiting global supply.

• The energy transition is driving demand: electric vehicles contain 20–30% more aluminium than conventional cars.

• High energy prices are squeezing smelters' margins and limiting producers' ability to expand.

These structural factors support the view that aluminium remains structurally scarce and strategically valuable .

Geopolitics as a New Price Factor

The Mercuria case shows how commodity markets are increasingly acting as geopolitical barometers.
The origin of metal – Russian or non-Russian – has now become a determining price factor, with self-imposed "consumption jobs" of Western buyers leading to origin premiums and discounts.

Transparency and oversight

The incident has revived the discussion about market transparency .
Although the LME publishes general data on position size, the names of holders are not mentioned. This creates information asymmetry between large trading houses and smaller industrial consumers.

Regulators and market participants are therefore calling for more openness about the positions and origin of metals, without undermining commercial strategies.

Conclusion

Mercuria's aluminum position marks a tipping point in global commodity trading.
It shows how:

• markets are becoming increasingly intertwined, as well as

• geopolitical expectations have a direct price impact,

• and how large trading houses can steer market dynamics on a scale that was once unimaginable.

The episode highlights that aluminium – once a basic industrial raw material – has now also become a strategic financial instrument , in which trade, geopolitics and energy are inextricably linked.

By Muflih Hidayat - Discovery Alert