Aluminum supply "black hole" triggers metal frenzy! JPMorgan shouts aluminum prices will reach $4000, London Metal Index hits a new high.

The ongoing geopolitical war in the Middle East has completely disrupted supply and pushed up prices of commodities in general, along with the recent strength in copper prices. Additionally, the trading price of aluminum, an industrial metal, on the London Metal Exchange (LME) is approaching historical highs. Under the influence of these factors, one of the benchmark indices for measuring metal trends - the LME Index - has reached a new all-time high. According to Wall Street financial giant JPMorgan Chase, the aluminum market is transitioning from a long-standing narrative of oversupply to a new narrative dominated by capacity destruction, restricted substitutes, and regional supply imbalances. With the aluminum market facing a continuous expansion of supply gaps, the $4000 target price is no longer considered an aggressive scenario but a natural outcome of the increasing supply shortages. As copper and aluminum continue to trend upwards, and with the temporary ceasefire between the US and Iran boosting post-war recovery trading themes, some funds have started flowing into relatively lower-priced metals such as nickel, zinc, and tin. An index tracking six major metals on the London Metal Exchange has risen nearly 12% in the past four weeks, reaching a new all-time high at the close on Thursday. Since the outbreak of the Iran war at the end of February, the international benchmark price of aluminum - LME aluminum price - has risen by about 15%, with the Middle East region, which accounts for about 9% of global aluminum production, facing supply shocks. Aluminum holds the largest weight in the London Metal Exchange Index, with aluminum and copper together comprising nearly three-quarters of the index's weight. On Friday, most metal prices fell, with Shanghai aluminum prices falling 0.3% to $3632.50 per ton at midday. Copper fell by 0.3%, while nickel rose by 1.8%. As of Thursday, the LMEX Metal Index has risen by 3.6% this week. LME aluminum prices climbed to over $3650 per ton on Thursday, reaching their highest trading price level since March 2022. "Although the Iran war has not been resolved, traders are re-establishing basic industrial metal positions and carrying out recovery trades ahead of time," said Gao Yin, an analyst at Shuohe Asset Management Co. "They also like to trade with the certainty of interrupted aluminum supply." Massive reduction expected in aluminum supply in the Middle East JPMorgan Chase recently issued a research report warning that the global aluminum market is facing a severe and persistent supply gap, with the aluminum industry heading towards a significant supply-side "black hole". Last month, Iran launched attacks directly targeting two key smelters in Abu Dhabi and Bahrain, leading to significant losses in aluminum supply. The "dual blockade" implemented by the US and Iran on the Strait of Hormuz has also caused a stagnation in shipping. Qatalum has initiated controlled shutdowns, and Hydro, a shareholder of Qatar's Qatalum smelter, estimates that a full restart will take 6 to 12 months; Alba in Bahrain announced that some contracts are force majeure; EGA also confirmed delays in loading and shipping - Emirates Global Aluminium PJSC, the largest aluminum producer in the Middle East, halted production at one of its smelters after being hit by Iranian missiles, citing force majeure for at least some deliveries. The Middle East accounts for approximately 9% of global primary aluminum production, and aluminum smelting itself is an industry that is extremely energy-intensive. Therefore, risks such as the closure of the Hormuz Strait, disruptions to shipping, smelter attacks, and force majeure declarations immediately exacerbate market concerns about "spot supply disruptions". In addition, aluminum, a lightweight industrial metal, has long been seen as a substitute for copper, especially in cost-sensitive, weight-sensitive, and relatively loosely conductive applications. This substitution trend has been ongoing for over a decade and has accelerated in recent years due to resource security and the promotion of new energy industries. However, in high-reliability and high-power applications, copper remains irreplaceable. However, despite the continued closure of the waterway, signs that the US and Iran ceasefire may be extended, and indications that both parties may be closer to reaching a peace agreement have boosted trading prices of other major commodity industrial metals, including aluminum. Previously, these metals had suffered due to concerns over rising energy costs and the potential drag on global economic growth due to war, but in recent weeks, as signs of a gradual easing of conflicts have emerged, they have rebounded. On Thursday, US President Donald Trump claimed without providing evidence that Iran had agreed to conditions it had long rejected, including abandoning its ambitions to develop nuclear weapons. Tehran has not confirmed any concessions. Mercuria Energy Group and BMO Capital Markets forecast this week that copper prices will surpass the record high set in January. They pointed out that with expectations for the US and Iran to reach a long-term peace agreement significantly increasing in the near term, as well as Chinese buyers returning to the market, and the White House set to make a new decision on tariffs, more goods are expected to be transported to the US. Copper prices have risen by 11% in the past four weeks, with prices currently only about 3% away from their all-time closing high. LME aluminum prices expected to reach $4000 According to JPMorgan Chase, the aluminum market is experiencing the largest supply gap in 25 years. The global aluminum market has moved from traditional cyclical tensions to a structural, continuous, and difficult-to-quickly-repair supply collapse. JPMorgan Chase's so-called "black hole" essentially refers to: once a supply gap is formed due to key smelting capacity being damaged, even if geopolitical tensions ease marginally and logistical conditions improve, the market cannot quickly return to its previous equilibrium. This shock is considered the most severe supply crisis in the past twenty-five years, not only because the temporary blockade of the Hormuz Strait weakened the circulation of raw materials and finished products, but also because the direct attacks by Iran on the two key smelters in Abu Dhabi and Bahrain have elevated events that could have been seen as "short-term transport disturbances" to substantial losses in smelting capacity. This means that market trading now reflects not only freight and risk premiums but also long-term metal shortages that will last for several quarters, or even longer. More importantly, the aluminum industry has very low supply elasticity, making this crisis path-dependence very significant. Aluminum smelting is not a typical commodity industry where "price rises - supply immediately recovers." Once a smelter shuts down, restarting typically involves high capital, energy, equipment, and process reboot costs, which are also more complex than the market imagines. Therefore, capacity recovery is generally measured in terms of "years" rather than "weeks" or "months". Because of this, JPMorgan Chase defines this shock as a supply "black hole", meaning that once a supply gap enters the market pricing framework, it will not be quickly erased by expectations of a ceasefire or improved shipping conditions. In the past, the market could still argue whether the sharp slowdown in demand caused by geopolitical wars lifting oil prices was enough to offset supply interruptions; however, after the direct damage to key smelting assets, this logic has significantly weakened. The rise in aluminum prices now reflects more the irreversible losses in capacity and the long-term tensions caused by delayed supply recovery, rather than simply geopolitical sentiment premiums. JPMorgan Chase emphasizes that the aluminum market is transitioning from a long-standing narrative of oversupply to a new narrative dominated by capacity destruction, limited substitutes, and regional supply imbalances, and the $4000 target price in this framework is no longer considered an aggressive scenario but a natural outcome of the continuous expansion of the supply gap. Furthermore, a research report by a team led by Michael Hartnett, a strategist at Bank of America known as "Wall Street's Most Accurate Strategist," suggests that even if a new round of Middle East war is temporarily declared over, the upward trend in the global commodity market will continue for many years until the end of 2030. The Bank of America strategists led by Hartnett wrote that in the coming years, investors will continue to flood into the commodity trading market mainly because the commodity trading theme will benefit from global geopolitical and macroeconomic uncertainties. In the eyes of Bank of America strategists, commodities are at the highest level of logic in the aftermath of trading, and they bet that in the coming years commodities will overtake stocks to become the biggest winners. The core reason for this is that investors urgently need to hedge risks, inflation, and a weakening US dollar, and geopolitical and global AI competitions essentially strengthen the competition for energy, rare earths, minerals, and key resources. He even summarized the core logic as follows: whoever controls chips, rare earths, minerals, and efficient energy will win this global AI war. This means that, in the eyes of Bank of America, the pricing core of the post-war world is no longer just interest rates and profits, but resource security, supply chain control, and fiscal expansion.