While Canada is a leading aluminum producer, there is little it can do to quickly boost supply during the current global aluminum crisis, says a commodities expert.
Aluminum prices have hit a four-year high after the war in Iran knocked out two-thirds of the Gulf region’s aluminum production. The disrupted metal is widely used across industries, primarily in transportation, construction, packaging, and electronics.
With ongoing shipping disruptions in the Strait of Hormuz, global buyers are looking to secure alternative supply chains. But most Canadian smelters are already running at full capacity, says Bart Melek, head of commodity strategy at TD Securities.
“Eventually you will maybe speed up your developments, you will maybe open up plants that were shuttered, but that is all going to take a bit of time,” says Melek.
“But as it stands, you are not going to be able to offset the large declines that we’ve seen in the Middle East… We don’t really see a balanced market until 2028.”
Europe paying premium for Canadian aluminum
Canadian producers are already redirecting aluminum shipments to Europe, where buyers are willing to pay higher premiums, after the U.S. enacted a 50 per cent import duty on the metal last year.
This is directly impacting the London Metal Exchange benchmark price, as well as the Midwest and European premium prices, says Melek.
Canada is the fourth-largest primary aluminum producer in the world, following China, India, and Russia. in 2024, it produced 3.3 million tonnes of primary aluminum, according to Natural Resources Canada.
Rapid decline in inventories
Before the conflict, the Gulf region accounted for roughly 9.5 per cent of global aluminum supply and as much as 18 per cent of U.S. demand, says Melek.
Out of that regional production, roughly two-thirds is now offline because of the war.
The closure of the Strait of Hormuz has trapped shipments, while major regional producers, including Emirates Global Aluminium in the UAE, have suffered damage to smelting facilities, removing millions of tonnes of production from the global supply chain.
“The region prior to the war has supplied about nine and a half percent of global supply, and has supplied as much as 18 per cent of U.S. demand, and that’s having a huge impact,” says Melek.
He says deficits could reach three million tonnes this year and two million tonnes next year.
“We’re seeing a very, very rapid decline in inventories, not unlike what we are seeing in the oil market right now.”
Oil prices were approaching US$100 a barrel on Wednesday morning, with Brent crude trading around US$97 a barrel.
Smelters shutting down
Melek says the conflict is crippling the aluminum industry by forcing smelters to shut down because of electricity disruptions caused by kinetic strikes in the region.
“Even under benign conditions, if it’s a planned shutdown, it’ll take nine to 12 months to reopen a smelter,” says Melek.
He adds that disruptions to raw materials, including bauxite used to make aluminum, are also contributing to supply shortages.
No quick rebound after the war
Even if the conflict ends soon, supply is unlikely to recover quickly, says Melek.
He says technical challenges and equipment damage will make restarting offline facilities a slow and difficult process.
“We could see demand expectations move higher, and prices move over and above where they are today.”
Still, Melek believes aluminum prices may already be near their peak.
For prices to climb above US$4,000 per tonne, he says a significant additional supply disruption or a sharp acceleration in demand growth would likely be required.
“I guess anything is possible. We simply don’t know. War brings out a lot of uncertainty, and you know it would be irresponsible for me to say it can’t happen, because we all know that times of war things that are unexpected typically do happen,” says Melek.
