Middle East Shocks Send Aluminum Prices Soaring, Delivering a Windfall for the Industry

Canada’s aluminum industry is poised to benefit from elevated prices as global supply of the base metal continues to be disrupted by the war in the Middle East, where production sites have shut down or suffered critical damage.

 

While aluminum prices slid this week after the United States and Iran announced an interim peace deal, benchmark prices remain almost 10 per cent higher than when the conflict started in late February.

 

Gulf countries produce around 9 per cent of the global aluminum supply. Their production normally flows through the Strait of Hormuz, which is reopening after months of an effective shutdown.

 

 

“Aluminum was one of those secondary casualties of the conflict,” said Marc Ercolao, an economist at Toronto-Dominion Bank.

 

While oil prices soared immediately after the conflict broke out, aluminum prices gradually rose and hit a four-year high in May as investors priced in war-risk premiums, increasing energy-related production costs and tightening supply.

 

Several analysts say lingering geopolitical uncertainty and smelters’ inability to swiftly resume normal operations may result in a deficit of global aluminum supply that would keep prices elevated through the end of the year.

 

“It’s normal for markets to still price in some residual geopolitical risk,” Mr. Ercolao said.

 

That offers something of a salve to the Canadian industry, which has been slammed by tariffs of 50 per cent on raw aluminum shipments to the U.S., in addition to other duties.

 

Throughout the conflict, energy-intensive aluminum smelters across the globe faced rising production costs as the war drove up the prices of oil, gas and other inputs.

 

Amid all of this, Canada was seen as an attractive lower-cost supplier as 96 per cent of its production is powered by hydroelectricity. The country is the world’s fourth-largest producer, accounting for around 5 per cent of the global supply while operating at 95-per-cent capacity.

 

 

Higher prices have helped Canadian producers weather the effects of U.S. tariffs that began in early 2025, affecting both raw aluminum and derivative products.

 

“Right now, the prices are high. It’s very nice, but we know it’s not sustainable,” said Jean Simard, president and chief executive officer of the Aluminium Association of Canada, which represents Alcoa Corp., Alouette and Rio Tinto.

 

Canada exports 90 per cent of its aluminum production, with about 90 per cent of that normally heading to the United States. Shipments to the U.S. plummeted in the immediate months after tariffs took effect. Canada managed to shift some of those exports to Europe and Asia, but not enough to make up the difference.

 

Since the war broke out, Canadian aluminum exports to the U.S. have largely rebounded, as Washington’s previous supply from the Middle East was interrupted.

 

The market outlook is highly uncertain. Analysts say it could take from a few months to more than a year for the Middle East’s output to recover, as many of its smelters went into controlled shutdown in response to energy shortages, supply disruptions or material damage from the conflict.

 

“It will take time for the transportation of raw materials to resume back to normal, and for inventory to replenish. It’s not going to snap back overnight,” said Helen Amos, managing director and commodities analyst at BMO Capital Markets.

 

The Emirates Global Aluminium Al Taweelah site in Abu Dhabi, which produces 1.5 million tonnes of aluminum a year, went offline after suffering heavy damage from an attack on the facility. Ms. Amos said its recovery could take more than a year, while other smelters in the region should be able to resume operations in one to two months.

 

“All else equal, if those volumes do start to improve, that does kind of suggest that the market balance of that commodity is going to start loosening,” she said.

 

 

Mr. Simard said the aluminum market is tight, meaning the world essentially produces as much as it consumes. In 2024, global production stood at 75 million tonnes – 45 million of which was produced in China. As the Gulf produces almost seven million tonnes itself, the shock is expected to have persistent effects on global markets.

 

A pressing concern for Canadian producers is the future of the United States-Mexico-Canada Agreement, which is up for review on July 1, though it’s unlikely to be renewed at that time. Canada has not entered into formal negotiations with the U.S., but will be looking for relief from Section 232 tariffs on key industrial sectors, including aluminum, in the coming months.

 

“If we can see some relief on those tariff rates in the near term, that should definitely help provide a bit of a lift to the Canadian aluminum sector,” Mr. Ercolao said.

 

 

 

 

 

This article was first reported by The Globe and Mail