International Aluminium Institute data show average daily global primary aluminium output fell to 197.4kt in April. Total monthly production dropped 5.3% month-on-month and 2% year-on-year to 5.92mt.
China’s aluminium production decreased 3% month-on-month to 3.7mt in April. Year-to-date output reached 14.7mt, up 1.6% year-on-year.
The Gulf region recorded the steepest fall, with production down 29% month-on-month and 34.6% year-on-year to 330kt. This was the lowest level since November 2013.
The downturn was linked to cuts in Gulf output tied to the Iran conflict. Alumina supply was diverted away from the Middle East, which helped limit disruption and support near-term Chinese production.
The data from April shows a clear supply shock to the global aluminum market, primarily caused by conflict-related production cuts in the Gulf. This significant drop in output, the sharpest we have seen in the Gulf since 2013, creates a strong basis for upward pressure on prices. We should therefore be positioning for higher aluminum prices over the coming weeks.
This bullish sentiment is already being reflected in the market, with LME aluminum prices climbing toward $2,700 per tonne, a level not consistently held for over a year. This price action is supported by exchange inventories falling to multi-year lows, with LME-registered warehouse stocks now well below 450,000 tonnes. These low stockpiles mean the market has a very thin cushion to absorb further supply disruptions.
Given the geopolitical drivers, we should anticipate continued price volatility, making options strategies particularly attractive. Buying call options on LME or COMEX contracts offers a way to profit from rising prices while limiting downside risk if the supply situation unexpectedly improves. The elevated volatility means option premiums are higher, but the potential for sharp price spikes justifies the cost.
This situation is reminiscent of the market reaction we saw in 2018 when sanctions were imposed on a major Russian producer, causing prices to surge over 30% in a matter of days. While the circumstances are different, it serves as a powerful reminder of how quickly supply-side shocks can be priced into the market. We must be prepared for similarly rapid price movements.
However, we must also watch the dynamic with China, whose production has remained relatively stable. Chinese smelters are absorbing alumina diverted from the Middle East, which could temper the global shortfall and cap the ultimate peak in prices. This could create opportunities in spread trades, such as betting on the premium for Western aluminum contracts to rise faster than those on the Shanghai Futures Exchange.
For the immediate future, we should be implementing or adding to long positions through futures contracts for direct exposure. Hedging against a sudden reversal is also wise, possibly by purchasing out-of-the-money puts as a form of insurance. The core strategy for the next few weeks remains bullish, focused on capturing upside from this clear and significant supply constraint.
