Missile strikes have damaged major smelting facilities in the region, creating a supply deficit projected to reach 4 million metric tons this year [1]. Western buyers are expected to bear the brunt of this shortfall as inventory on key exchanges has been rapidly depleted.

Deliverable stocks on the London Metal Exchange (LME) and CME warehouses have slumped by 70% since the start of the year, according to market data [1]. This leaves the global market with thin inventory cover at a time when shipping through the Strait of Hormuz -- a critical chokepoint for raw materials -- has been severely constrained [1]. The combination of production damage and logistical paralysis has created what analysts describe as a perfect storm for industrial metal supplies.

Critical Damage to Production Centers Strains Global Supply

A missile strike last month on Emirates Global Aluminium's Al Taweelah facility in the United Arab Emirates may require up to a year for recovery, according to company officials [1]. This facility represents a significant portion of Gulf aluminum production capacity, which accounts for approximately 17% of global aluminum output according to industry estimates [2].

Aluminium Bahrain (Alba), the largest single-site production plant outside of China, has also been impacted, although the extent of damage remains unclear [1]. Both Alba and Qatar Aluminium had already reduced output prior to the attacks due to power shortages [1]. The situation threatens to worsen as smelters exhaust their raw material stocks amid shipping constraints through the Strait of Hormuz [1].

Exchange Stocks Depleted, Leaving Market with Thin Inventory Cover

Registered inventory on the London Metal Exchange has shrunk to under 400,000 tons, traders reported, with an additional 100,000 tons in off-warrant storage [1]. This represents a dramatic decline from over 5 million tons available in the early part of the last decade. Of the remaining LME inventory, approximately 270,000 tons consisted of Russian metal at the end of March, which many Western users cannot purchase due to sanctions [1].

The physical tightness in the market is reflected in time-spreads, with the benchmark cash-to-three-months spread reaching a backwardation of $95.50 per ton -- the most severe market tightness since 2007 [1]. This backwardation indicates immediate demand substantially exceeds available supply. Traders have been actively repositioning remaining non-Russian inventory, with 98,000 tons of LME-registered Indian aluminum being cancelled and then re-warranted in March as spreads widened [1].