50-year strongest bull market! Citi: Aluminum prices to reach 4,000 within 3 months, over 5,000 dollars next year

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The global aluminum market is experiencing the most intense supply shock in half a century, with top Wall Street investment banks issuing clear bullish signals one after another.

According to a report released by Citi on May 18, supply disruptions caused by Middle East conflicts, combined with a structural production ceiling, have pushed the aluminum market into an "extremely tight state with inventories at the lowest level in 55 years." Citi expects aluminum prices to rise to $4,000 per ton within the next three months; in a bull market scenario, the average price in 2027 may reach $5,350 per ton.

J.P. Morgan similarly warned clients that the global aluminum market is experiencing the largest supply shortfall in more than 25 years. Aluminum prices are expected to break above $4,000 per ton, with the current situation being characterized as the market formally entering a supply "black hole."

The assessments from both institutions point to a core conclusion: the logic behind this round of price increases is not driven by strong demand, but by structural damage on the supply side. Unless there is a severe recession comparable to the 2008 global financial crisis, the downside room for aluminum prices is already very limited. Recently, London aluminum prices have risen above $3,600 per ton, a four-year high. For investors, $4,000 is no longer a distant forecast, but a reality approaching quickly.

Middle East Impact: More than 3 Million Tons of Capacity Loss is Set in Stone

The direct trigger for this aluminum supply crisis is the large-scale permanent loss of aluminum smelting capacity in the Middle East. Iran launched direct attacks on two key smelters in Abu Dhabi and Bahrain, causing irreversible loss of capacity and sharply lowering global aluminum supply expectations.

According to Citi citing Wood Mackenzie data, compared to forecasts before the conflict broke out, aluminum output predictions for the Middle East have been significantly lowered, with losses exceeding 3 million tons. Even more crucial, the timeline for restarting capacity is highly uncertain, relying on multiple factors such as the duration of the conflict, infrastructure repair timeline, normalization of logistics, and resupply of raw materials. Citi believes there is a very low probability for a V-shaped rapid recovery of supply in the region.

J.P. Morgan agrees—even if Hormuz Strait logistics immediately return to smooth operation, the global aluminum market will still face severe and lasting supply disruptions, and the market has officially entered what they describe as a supply "black hole." The structural characteristics of the aluminum smelting industry further aggravate the situation: once a smelter shuts down, the cost and technical difficulty of restarting are extremely high, with a full recovery of supply taking at least a year, if not longer.

Supply Elasticity at Zero: China Topped Out, Middle East Damaged, Nowhere Else to Turn

The reason for the difficulty of compensating for Middle East supply losses lies in the exhaustion of global aluminum system supply elasticity.

Citi points out that after years of supply-side reforms, China's aluminum capacity is now effectively capped. Previously ample idle capacity has virtually disappeared, making it impossible to quickly release additional supply. Outside China, most profitable global capacity is already operating at full load. Indonesia is one of the few regions capable of providing significant incremental supply, but its expansion pace and timing are still subject to execution and ramp-up risks.

Meanwhile, Western manufacturers find themselves especially passive. Main aluminum sources have been effectively cut off from the U.S. and European markets due to sanctions and trade tariffs. Factories are looking for alternative sources at higher prices, but for some downstream products that Middle Eastern smelters specialize in, supply gaps may be impossible to fill altogether. This means the impact of this crisis is not limited to price levels, but will also directly hit the supply chains of Western manufacturing.

Demand Structure Has Changed: Green Transition Reduces Downside Elasticity

Compared with historical aluminum price down-cycles, the current demand structure is much more countercyclical, further narrowing the downside space for aluminum prices.

Citi points out that in the past, aluminum demand heavily depended on the traditional industrial cycle. Once the economy declined, demand shrank sharply, giving the market room for self-repair.

But in the current setup, the share of electricity grids, renewable energy infrastructure, and electrification supply chains in aluminum demand has risen significantly. Citi’s terminal demand tracking model shows that energy transition demand is now close to a quarter of China’s total aluminum consumption, while China accounts for nearly 60% of global consumption. This type of demand is strongly policy-supported and far less sensitive to cyclical slowdowns than traditional industrial demand.

Furthermore, the price ratio of copper to aluminum is still at a historical high, and the cost of petrochemical raw materials structurally remains above early 2010s levels, meaning aluminum alternatives are equally expensive. Citi believes downstream consumers are facing a world where "competing material systems are also pricey." Thus, the urgency for large-scale substitution of materials is clearly subdued.

Inventories Near Historic Lows: Non-linear Upside Risks Mounting

With the supply-demand gap unable to be bridged by supply-side elasticity or substitution, the pressure in the aluminum market must ultimately be absorbed by inventory consumption—currently the market’s core contradiction.

Citi notes that aluminum inventories were already at their lowest levels in 55 years before the crisis broke out.

Currently, hidden inventories, financing inventories, trader stocks, and pipeline inventories can quietly absorb supply shortfalls for a period. That's why commodity tightening cycles often start with high volatility, being macro-driven rather than immediately erupting with price spikes. But as time passes, continued inventory drawdown will fundamentally change market structure: aluminum inventories are not only a physical buffer, but also a source of embedded short hedges related to financing and term arbitrage positions. Declining inventories mean these short positions are gradually being unwound, and the embedded market short base is constantly shrinking.

Citi warns that under these conditions, even relatively small additional supply shortages can trigger disproportionate, non-linear price reactions. Citi’s baseline forecast shows that even in a weak demand scenario, the aluminum market’s supply gap in 2026 will still reach about 2.7 million tons. Only an extreme downturn comparable to the Volcker tightening era or the 2008–2009 global financial crisis could essentially stabilize inventory coverage—not rebuild inventories—this marks a fundamental difference from previous aluminum down-cycles.

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The above content is from WindChaser Trading Desk.

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