London Metals Index Hits Record High Amid Fears of Aluminum Supply Disruption

Industrial Metals Reach Record High on London Metal Exchange

Industrial metals have reached a record high on the London Metal Exchange (LME), driven by gains in aluminum and copper. The LME Index, which tracks six major metals, has rallied by almost 12% over the past four weeks and reached an all-time peak on Thursday.

Aluminum has been a major contributor to the rally, rising by about 15% since the start of the Iran war. This is significant, as around 9% of global aluminum output comes from the Middle East. Aluminum has the largest weighting on the LME gauge, and together with copper, the two metals make up almost three-quarters of the index.

The aluminum industry is facing a severe supply deficit, with JPMorgan Chase & Co. warning of a "black hole" due to supply losses escalated dramatically in the wake of Iranian strikes targeting two key smelters in Abu Dhabi and Bahrain at the end of last month. A double blockade of the Strait of Hormuz has also kept shipments stranded.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Despite the supply concerns, other metals have recovered in recent weeks on signs that the conflict might be winding down. Copper, in particular, has rallied 11% in the last four weeks and is around 3% off its all-time closing price peak.

Mercuria Energy Group and BMO Capital Markets forecast this week that copper would surpass its record high hit in January, citing Chinese buyers coming back to the market and a looming decision on tariffs from the White House that's encouraging more shipments to the US.

As of Thursday, the LMEX Metals Index was up 3.6% this week, while aluminum fell 0.4% to $3,629.50 a ton, copper dipped 0.3%, and nickel rose 2.1%.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline