London, April 8th (Argus) - The announcement by the United States and Iran on Tuesday evening that they would cease hostilities for two weeks has boosted optimism in the aluminum market. However, the damage caused by the war to global supply has already been formed. Even if the ceasefire can bring about a more long-term solution to the conflict, the record delivery premium is unlikely to fall as a result.
The United States and Iran stated on Tuesday that they would suspend hostilities for two weeks to reach a peace agreement. This came at a time when US President Trump was approaching the deadline for Iran to reopen the Strait of Hormuz. Trump claimed that the ceasefire would prompt the strait to reopen, but Iran's highest national security committee described the peace proposal under discussion as "maintaining Iran's continuous control over the Strait of Hormuz".
The market responded positively to the ceasefire news on Wednesday. The benchmark Brent crude oil price dropped below $100 per barrel, and European natural gas prices plunged by nearly 20% at the opening.
However, the high aluminum prices and premiums are unlikely to be alleviated. The missile attacks by Iran on the Al Taweelah smelter of Emirates Global Aluminium (EGA) and Alba Aluminium in the region have reduced aluminum production by approximately 2.4 million tons per year. Since the conflict began, the total production loss in this region has reached approximately 3 million tons per year, and these losses will not recover quickly. Emirates Global Aluminium stated that the full recovery of its Al Taweelah smelter's aluminum production may take up to 12 months.
A trader said: "Psychologically, the situation is now more optimistic, but the reality is that about 3 million tons per year of production capacity has been lost permanently."
In addition, even if shipping through the Strait of Hormuz resumes, the insurance costs for such ships will be extremely high, thereby increasing the cost of all transported goods. This is a double blow to aluminum producers in the region, as raw materials need to be transported into the region through the strait, and the international delivery of aluminum also needs to be transported out through the strait.
The official three-month aluminum price of the London Metal Exchange (LME) broke through $3,500 per ton for the first time since March 2022 on Tuesday, while the European tariff-paid aluminum premium assessed by Argus reached a historical high of $580-600 per ton last week.
