Supply shocks from the U.S.-Iran war in the Middle East are set to send aluminum inventories to all-time lows, while prices soar to new heights, according to Citi. In a Monday note, analyst Wenyu Yao called it the "most bullish set-up" for aluminum in more than 50 years. Yao estimates aluminum prices will average $4,000 per metric tonne in the second half of 2026. That's almost 12% higher than where aluminum prices settled Monday on the London Metal Exchange . Iran's closure of the Strait of Hormuz has not only disrupted the global oil supply, it's also trapped shipments of Middle Eastern aluminum . Yao said the aluminum market no longer needs high demand for prices to remain elevated, due to the scale of the supply problems. @LAL.1 YTD mountain London Metal Exchange Aluminum year-to-date. "Unlike previous downturns where weaker demand and eventual supply rationalisation loosened the market, the current shock is supply-driven and much of the damage is already done," Yao wrote. "We expect ~2.7Mt of deficit this year even under sluggish demand." Citi recommends two trades: long the London Metal Exchange aluminum contract for December 2026, and long calls with a $3,300 strike and short calls $3,600 strike on the same contract. The bank opened these trades in January. Citi warned that futures trading is risky. The State Street SPDR S & P Metals & Mining ETF (XME) is only up nearly 7% in 2026, and aluminum producer Alcoa has gained nearly 21% over the same period. The iShares US Basic Materials ETF (IYM) is up more than 14%. But Yao believes there's little that can change the price trajectory of aluminum at the moment, which could be a bullish sign for those trades. "While near-term volatility and position reduction may pressure prices, downside appears increasingly self-limiting outside a severe recession," Yao wrote. XME YTD mountain State Street SPDR S & P Metals & Mining ETF year-to-date.
