Energy storage demand surges, electricity bottlenecks constrain supply. Morgan Stanley predicts: Aluminum will face a shortage ahead of schedule next year!

Wall Street is revising its outlook on the aluminum market. In its latest heavyweight research report released on November 19, Morgan Stanley pointed out that the fundamentals of aluminum are undergoing a structural reversal.

According to Wind-chasing Trading Desk, Morgan Stanley now predicts that the global aluminum market will fall into a supply shortage in 2026, which is clearly earlier than previously widely expected. The core driving force is the sharp widening of the supply-demand gap: on the demand side, energy storage systems (ESS) are showing explosive consumption of aluminum, completely offsetting weakness in other sectors; on the supply side, global electricity shortages are becoming a hard constraint, and AI computing power’s scramble for electricity is squeezing out the vulnerable aluminum smelting capacity due to its high energy consumption.

Previously, the mainstream market view was relatively conservative. Citi analysts predicted that the global primary aluminum supply gap would begin in 2027, while Wood Mackenzie believed shortages would start in 2028. Morgan Stanley’s latest forecast brings the shortage timetable forward by at least a year. The bank has fully raised its earnings forecasts and target prices for aluminum stocks, arguing that the market underestimates both the speed of energy transition-driven base metal consumption and the severity of the electricity bottleneck.

Morgan Stanley’s analysis points out that besides the supply-demand mismatch, inventory data has also issued warnings. As the proportion of direct use of molten aluminum increases, the amount of deliverable goods flowing to the futures market will continue to tighten, creating a very high safety margin for aluminum prices. Aluminum price momentum is shifting from mere macro expectations to solid fundamental support. In 2026, the global aluminum market will face a supply shortage, and Morgan Stanley has fully raised its earnings forecasts and price targets for aluminum stocks.

Demand Side: Energy Storage as the “Invisible Giant”

The market has long underestimated the energy transition’s consumption of base metals, particularly in energy storage. Morgan Stanley’s data is not only surprising but also alarming:

Unit consumption is astonishing: According to latest channel research, every 100GWh of energy storage systems (including batteries and components) consume 160,000 tons (160kt) of aluminum. This includes consumption from castings, foils, and components.Penetration is soaring: The share of energy storage batteries in China’s total battery production has surged from 25% in June to now over 40%.Absolute increment is huge due to base effect:2024: Global ESS capacity is 350GWh.2025: Expected to leap to 600GWh.2026: Expected to grow another 50% or more on top of 2025.Aluminum consumption surges: ESS is forecast to use about 960,000 tons of aluminum in 2025 (up 71.4% year-on-year); by 2026, ESS alone will bring 1.44 million tons of new aluminum demand.

Combined with demand from electric vehicles (production up 30% year-to-date), appliances, and power cables—even considering that solar installations may drop from a high in 2026 (from 280-290GW in 2025 to about 200GW)—the increment from ESS is enough to support overall aluminum demand growth of over 2% in 2026.

Supply Side: “Electricity War” between AI and Aluminum Smelting

Previously, bearish views on aluminum prices revolved around Indonesian supply coming onstream, but Morgan Stanley notes this outlook is too optimistic, ignoring the key “power” constraint.

Indonesian capacity falls short: Despite extensive aluminum capacity planning in Indonesia, actual ramp-up is extremely slow. Even with large pipeline projects, Morgan Stanley forecasts Indonesia’s actual new supply in 2026 will be only 700,000 tons. For instance, Xinfa Group’s Morowali follow-up project needs to build its own 2.5GW power supply, so it’s expected to be delayed until the end of 2027 to have power.Global electricity competition: Electricity-intensive aluminum smelting faces growing competition from AI data centers’ electricity demand.Data from the U.S. Aluminum Association shows smelters need $40/MWh electricity price, while tech firms are willing to pay over $100/MWh for AI computing power.This price disadvantage means that 850,000 tons of idle capacity in Europe and the U.S. is hard to restart, and even threatens current capacity (e.g. South32’s Mozal project faces risks in renewing power contracts).Around 700,000 tons of global capacity has already been interrupted this year due to power issues.China’s capacity ceiling: As the world’s largest aluminum producer and consumer, China is steadily approaching its 45 million-ton annual capacity cap. By 2026, China’s domestic supply increase is expected to be 600,000 to 700,000 tons.

Overall, global aluminum supply is expected to increase by only 1.3-1.4 million tons in 2026 (about 1.9% year-on-year), which cannot meet demand growth of over 2%, leading to a market deficit.

Inventory & Market Structure: Extremely Low Inventories Support Price Floor

Fundamental tightness is already reflected in inventory data, providing a very high safety margin for aluminum prices.

Historical inventory lows: China’s aluminum inventory is now only 600,000 tons, an extremely low level compared to the past five years.Rising molten aluminum ratio: The government is encouraging more direct use of molten aluminum, with the goal of increasing the share from the current 77% to 90% by 2027. This means less aluminum ingot will be cast and delivered to the futures market, further tightening deliverable supply and strongly supporting prices.

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