The shutdown of the Mozal aluminium smelter in Mozambique is contributing to worsening the global supply deficit of the metal, at a time when the market is facing one of the most severe supply disruptions in recent history due to falling production in the Gulf region, caused by the war between Israel and Iran.
According to data from the International Aluminium Institute (IAI), cited by Reuters, regional production in the Gulf fell in April to its lowest level in more than a decade. Between March and April, output declined at an annualised rate equivalent to two million tonnes.
The reduction is due to damage suffered by two smelters in the region following missile attacks. The Al Taweelah plant, operated by Emirates Global Aluminium, is expected to take around one year to fully restore operations. At least one other producer in the region, Qatalum, has also reduced output.
At the same time, the continued closure of the Strait of Hormuz is causing additional logistical constraints for remaining operations. The Gulf region accounts for more than one-fifth of global aluminium production outside China and supplies key markets such as Japan, South Korea, the European Union and the United States.
Despite the supply shock, aluminium prices on the London Metal Exchange (LME) have not yet fully reflected the scale of disruption. Prices stood at $3,650 per tonne, up 14% since the start of the conflict, but still below the highs recorded after Russia’s invasion of Ukraine in 2022.
However, other market indicators point to growing scarcity. The spread between spot prices and three-month contracts entered backwardation in early March, with the physical market trading at an $80 per tonne premium, the highest level since 2007.
LME inventories have fallen by about one-third since the start of the year to 339,475 tonnes, while around 68,000 tonnes have recently been withdrawn for physical delivery. Remaining stocks are largely concentrated in Russian aluminium stored at the South Korean port of Gwangyang, constrained by sanctions linked to the war in Ukraine. Off-exchange inventories have also fallen to their lowest levels since 2020.
Another sign of tightening supply is emerging in physical market premiums. In Japan, the CME spot premium more than doubled to $316 per tonne above the LME price, while buyers agreed to pay $350 per tonne for second-quarter deliveries, the highest level in 11 years. In Europe, premiums rose 58% in the duty-paid market and 75% in the duty-unpaid market. In the United States, the Midwest premium increased by 8%, in an environment already pressured by 50% import tariffs.
Pressure is also extending to off-exchange segments. In Rotterdam, the premium for aluminium extrusion billet (used in construction and transport sectors) more than doubled to $1,100 per tonne above the LME benchmark, according to Fastmarkets.
In this context, the Mozal shutdown appears as an additional pressure factor. According to the IAI, reduced Gulf output combined with the halt of the Mozambican smelter—attributed to rising energy costs—has resulted in a combined loss of 2.4 million tonnes in Western production over the past two months.
The situation could worsen if remaining Gulf smelters face difficulties sourcing raw materials via alternative routes to the Strait of Hormuz. China has increased production to respond to global shortages, but is nearing government-defined capacity limits, reducing room for further expansion. In addition, Chinese exports are expected to focus mainly on semi-finished products such as sheets, foil and bars, rather than primary metal.
Although inventories still provide some short-term buffer, analysts warn that the longer the Strait of Hormuz remains disrupted, the weaker that absorption capacity becomes. For the global market, the current situation represents a structural disruption in a sector that for two decades operated with oversupply and high inventory levels. Prices have not yet fully adjusted to this shift, but physical buyers are already adapting to the new reality.
