Triple Headwinds for Aluminum Prices in the Short Term

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Aluminum prices face significant downward pressure in the short term, as three supply-side headwinds are forming simultaneously. Although supply disruptions caused by conflicts in the Middle East have provided strong support for aluminum prices, the market is cooling due to China’s unexpectedly rapid production growth, Indonesia’s swift smelting capacity ramp-up, and the potential release of inventories from the Middle East.

According to Chasing Wind Trading Desk, Bank of America Securities’ Global Metals Weekly published on June 12 stated that official data show annualized aluminum production in April reached 47.6 million metric tons. If this rate continues, the global aluminum market will shift from a small expected shortage to a surplus. Meanwhile, Indonesian smelters are expected to add about 2 million metric tons of supply this year. If tensions in the Strait of Hormuz ease, 500,000–1,000,000 metric tons of inventory piled up in the Middle East may be released into the market.

This triple pressure has caused both funds and physical buyers to take a wait-and-see attitude. Bank of America Securities’ commodities strategy team led by Michael Widmer notes that although markets outside China remain tight and long-term investments in energy security are expected to boost metal demand, the firm maintains its aluminum price target at $4,000/ton, but short-term price vulnerabilities must not be ignored.

Disputes in Chinese production data, surplus risk cannot be underestimated

The true level of China’s aluminum production remains one of the market’s biggest uncertainties.

According to Bank of America Securities, the International Aluminium Institute (IAI) estimates China’s annualized aluminum production in April at around 44.7 million tons, Shanghai Metals Market (SMM) estimates it at 46 million tons, while official data put it as high as 47.6 million tons—a nearly 3 million ton discrepancy.

Bank of America Securities uses 46 million tons as the base assumption in their supply-demand model, predicting a slight global aluminum shortage of about 153,000 tons in 2026. However, if official data is used, the global aluminum market would turn to surplus.

In terms of trade flows, the premium of LME aluminum over Shanghai Futures Exchange (SHFE) has made Chinese imports of primary aluminum uneconomical, while exports of semi-finished products are increasingly attractive. Data show China’s semi-finished aluminum exports are approaching levels seen when the government previously canceled export tax rebates, meriting close attention.

Indonesia’s smelting capacity ramps up, new supply pressure emerges

Indonesia is becoming a new force in the global aluminum supply landscape.

Indonesia’s aluminum output is expected to exceed 2.2 million tons this year, compared to only about 600,000 tons in 2025. Multiple smelting projects—including Kuala Tanjung, Huaqing, Nanshan, Adaro Kalimantan as well as facilities in Morowali and Weda Bay—are ramping up capacity.

Export data confirms the trend. Indonesia’s exports of unwrought and unalloyed aluminum hit multi-year highs in Q1 2026, although export scale has not been fully released due to capacity still ramping up. As Indonesian smelters improve operational efficiency, export volumes will continue to rise, adding incremental supply pressure to the global market.

Potential Middle Eastern inventory release limits upward price space

Since the outbreak of war in Iran, blockade of the Strait of Hormuz has led to a substantial build-up of Middle Eastern aluminum inventories. Once the situation eases and logistics normalize, concentrated release of these inventories will significantly suppress aluminum prices.

The potential release volume is between 500,000 and 1,000,000 tons. This is enough to offset to some extent the supply gap caused by declining Middle Eastern smelting capacity—annualized Middle Eastern aluminum output in April dropped 34.7% year-over-year, with smelters in UAE, Bahrain, Qatar, and Iran all impacted to varying degrees.

The report also notes that LME aluminum inventories have continued to decline, with about 25% delisted from warehouse receipts, reflecting ongoing physical demand. The futures curve maintains deep spot premiums. However, incremental supply from China, Indonesia, and the Middle East is expected to gradually ease this market imbalance.

Markets outside China remain tight, US and European buyers face high procurement costs

Despite gathering supply-side headwinds, market fundamentals outside China remain tight, with US and European buyers facing high procurement costs.

The Middle East accounts for about 20% of US and European aluminum imports. Smelter shutdowns and Strait of Hormuz blockades have sharply increased spot premiums in both regions. Notably, European consumers are actively competing with US peers for aluminum, pushing European premiums above US levels. This means US buyers not only bear a 50% tariff imposed by the Trump administration, but also face additional premiums resulting from European competition, while Europe’s corresponding tariff is just 3%.

Additionally, the shutdown of the Mozal smelter in South Africa (capacity 500,000 tons) has further tightened supply in Europe. Though this tight market provides some price support, uncertainty over the Iran war’s trajectory has caused fund and physical buyer positions to remain largely unchanged since the outbreak, with an overall wait-and-see market sentiment.

Long-term trajectory remains upward, price target maintained at $4,000/ton

Short-term headwinds have not shaken Bank of America Securities’ bullish outlook for aluminum prices over the medium and long term.

The firm expects a slight global aluminum shortage of around 153,000 tons in 2026, expanding to about 1.503 million tons in 2027. Based on this, Bank of America Securities maintains an average aluminum price forecast of $3,600/ton for 2026, rising to $4,313/ton in 2027, and sees $4,000/ton as a realistic price target.

The core logic supporting this outlook: supply disruptions from the Middle East will be persistent; China has set a 45 million ton production cap, limiting unchecked domestic supply growth; and accelerating global investment in energy security is expected to significantly boost demand for aluminum and other metals in the medium and long term.

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