The Iran war is escalating again but you would not know it from the aluminium price. Damage to two Gulf smelters and constrained logistics at others have already blown a 2-million tonne hole in the global supply chain. But after surging to a four-year high of $3,787.50/tonne in early June, London Metal Exchange (LME) three-month aluminium CMAL3 is now trading at about $3,170/tonne, which is exactly where it was before the US unleashed its “Operation Epic Fury” — joint strikes with Israel on Iran — on February 28. So where did the war premium go? And is the market right to be so relaxed about the unprecedented supply hit to what both Washington and Brussels view as a critical metal? A speedy recovery?The market has been encouraged by the progress made by Emirates Global Aluminium in repairing and reactivating its Al Taweelah facility after an Iranian missile strike. The alumina refinery is expected to return to production this quarter and on July 2 the company restarted the first 89 of 1,262 cells in the smelter. However, the situation at Aluminium Bahrain, also hit by Iranian strikes, remains unclear, while Qatar Aluminium is continuing to operate at 60% capacity. Gulf production slumped by 20% in the first half of this year, according to the International Aluminium Institute. Smelter run rates have dropped by more than 2-million tonnes annualised since the start of hostilities. Full recovery could still be many months away, even assuming a return to some sort of normality.That is looking increasingly unlikely as the US resumes its bombing campaign on Iran, Tehran tightens its chokehold on the Strait of Hormuz and the Iranian-aligned Houthis start enforcing their own blockade of the Red Sea. China exportsThe surprising market calm over the past few days rests on a growing confidence that the loss of Gulf metal, even if protracted, can be offset by higher exports from China and Indonesia. China’s aluminium smelters are enjoying strong profit margins thanks to the combination of low alumina and high metal prices. Capacity utilisation is sitting close to 99%, according to consultancy AZ Global. Exports of semi-manufactured aluminium products such as bars, rods and tubes rose 10% year on year in the first five months of 2026, according to the World Bureau of Metal Statistics (WBMS), which collects official customs data. Shipments of 595,000 tonnes in May were the highest monthly count since November 2024. While China’s product exports are not a like-for-like replacement for lost primary and alloy production from the Gulf, they can help rebalance the market by suppressing Western demand. The downside is that China’s exports compete with similar semi-product capacity in the West, which has already pushed back with multiple trade protection measures. Indonesia risingThen there is Indonesia. The country is rapidly emerging as a major supplier of primary aluminium thanks to a Chinese investment boom in new smelters. The 480,000 tonne a year Hua Chin smelter, a joint venture between Tsingshan Holding Group and Huafon Group, ramped up last year and in May applied to register its “HCAI” brand with the LME. Another new entrant, Alamtri Resources Indonesia, is commissioning a similar-sized plant and shipped its first exports in June. The project pipeline stretches to as many as 11 new smelters with combined annual production capacity of 13-million tonnes, according to Greg Wittbecker, president of Wittsend Commodity Advisors. Indonesia’s exports of primary metal jumped from 155,000 tonnes in 2024 to 511,000 tonnes in 2025 and rose by another 58% year on year in the first five months of this year, according to the WBMS.You can start to see why the aluminium market has become a lot more relaxed about the hit to Gulf production.Stock absorbers But Indonesia’s trade flows also reveal grounds for caution about the apparent resilience of the aluminium supply chain. The main destinations for last year’s exports were China, accounting for 40%, followed by South Korea and Vietnam with a 16% and 12% share respectively.However, there were significant exports to Europe, particularly in the fourth quarter of the year. Indonesian smelters shipped 15,000 tonnes to Spain, 14,800 tonnes to Croatia, 11,000 tonnes to Bulgaria, 5,000 tonnes to Italy and 5,500 tonnes to the UK. Another 39,000 tonnes were dispatched to Turkey.This seems to have been a collective stock-building exercise ahead of the implementation of Europe’s Carbon Border Adjustment Mechanism (CBAM) at the start of this year. While Inalum, Indonesia’s original producer, uses low-carbon hydropower to supply its smelter, the new generation of plants is powered by coal, meaning higher CBAM import costs. The inventory build has served a massive secondary function by cushioning the effect of the Gulf disruption. The big question, though, is how much has been drawn down and when will it need replenishing? It is noticeable that while the war premium has disappeared in the LME futures market it is still there in the CME’s physical premium contracts. The European duty-unpaid premium AEPc1 is up by 65% since the start of the US-Israeli war with Iran. The Japanese PJMc1 premium has more than doubled. LME traders may be sanguine about the deteriorating situation in the Gulf, but their physical counterparts do not seem so sure.