LME aluminium remains firm as Gulf supply risks, tight availability support prices

• Gulf tensions inject fresh risk premium into aluminium
  
  
• Record-high cash premium signals tightening metal availability
  
  

Benchmark aluminium prices on the London Metal Exchange (LME) increased by 1.2% w-o-w to $3,685/t from $3,642/t in the previous week. The uptrend was primarily driven by persistent supply-side concerns and strong market sentiment following aluminium's rally to multi-year highs. While profit-booking led to temporary corrections, firm underlying fundamentals continued to support prices during the week.

Pricing, inventory trends

LME aluminium prices averaged around $3,668/t during the week, increasing by $56/t or 1.6% w-o-w from $3,612/t. Prices opened the week near $3,682/t, eased to around $3,640/t during mid-week trading, and later recovered to close near $3,685/t. The overall uptrend was supported by firm market sentiment and continued supply-side concerns, despite intermittent profit-booking following recent gains.

Meanwhile, LME aluminium inventories declined marginally by 0.4% w-o-w to 338,000 t from 339,475 t, indicating continued tightness in exchange stocks and providing support to overall aluminium market sentiment.

Factors impacting prices

LME aluminium prices remained firm w-o-w as concerns over potential disruptions to aluminium shipments through the Strait of Hormuz continued to support risk premiums across the market. The Middle East accounts for a significant share of globally traded primary aluminium, prompting traders to factor in supply-chain risks despite the absence of major physical disruptions.

At the same time, the LME cash-to-three-month premium surged to its highest level in nearly two decades, signalling acute tightness in nearby metal availability. The strengthening premium structure highlighted strong competition for prompt units and reinforced bullish sentiment in the physical market.

Meanwhile, aluminium prices remained elevated despite intermittent profit-booking after touching fresh multi-year highs. Stable exchange inventories provided little evidence of immediate supply relief, allowing concerns over physical availability and regional supply risks to remain at the forefront of market sentiment.

Although periodic corrections emerged during the week as traders locked in gains, tightening physical market conditions and persistent Gulf-related supply concerns continued to outweigh broader macroeconomic pressures, helping aluminium retain most of its recent gains.

Outlook

LME aluminium prices are expected to remain firm in the near term, supported by persistent supply concerns, tight physical market conditions, and an elevated Cash-3M premium structure. Ongoing geopolitical developments in the Gulf region may continue to influence market sentiment. However, gains could be limited by profit-booking and any easing of regional supply-chain risks. Overall, prices are likely to fluctuate at elevated levels with a positive bias.