Aluminium Market to Remain Tight in Near Term Due to Middle East Outages, But Indonesia and China to Offset Disruption

The aluminium market is set to remain tight in the near term due to persistent outages in the Middle East, but stronger supply growth from Indonesia and China will push the market back into surplus next year, according to a research report by Goldman Sachs. The report notes that Middle East supply losses will persist longer than initially assumed, with damaged potlines requiring repairs and curtailed capacity needing to be restarted gradually.

The Middle East outages have resulted in a significant reduction in aluminium production, with Bahrain and the UAE being the most affected countries. Bahrain's output is expected to return to pre-conflict levels by mid-2027, while the UAE's output is expected to return to normal by the end of 2027. This near-term shock tightens the market balance, with Goldman Sachs now expecting the global aluminium market to post a 720kt deficit in 2026 and a 590kt surplus in 2027.

However, the report also notes that Indonesia and China will drive the supply offset, with Indonesian primary aluminium production forecast to reach 1.7Mt in 2026 and 2.9Mt in 2027. China's production is also expected to increase, with the country's strong margins supporting restarts and overproduction above the 45Mt capacity cap. The bank has raised its 2026/2027 production forecasts for China to 45.6Mt/46.3Mt, citing faster ramps at several major aluminium producers.

The impact of the Middle East outages and the subsequent supply wave from Indonesia and China will have significant implications for aluminium prices. Goldman Sachs has nudged its Q3 2026/average 2027 higher LME aluminium forecasts to $3,300/$2,950/t, but remains below forwards at $3,400/$3,250/t. The bank has closed its short Dec-26 LME aluminium trade and rolled to a short Dec-27, citing its structural surplus view.

The aluminium market has been volatile in recent years, with prices being influenced by a range of factors including supply and demand dynamics, trade policies, and geopolitical events. The current market situation is no exception, with the Middle East outages and the subsequent supply wave from Indonesia and China set to have a significant impact on prices and market balance. As such, market participants will need to remain vigilant and adapt to changing market conditions in order to stay ahead of the curve.

In terms of the broader implications of the report, it is clear that the aluminium market is set to remain complex and dynamic in the coming years. The Middle East outages and the subsequent supply wave from Indonesia and China will have significant implications for prices, market balance, and the overall structure of the industry. As such, market participants will need to remain informed and up-to-date on the latest developments in order to navigate the market effectively.

Furthermore, the report highlights the importance of Indonesia and China in the global aluminium market. Both countries are set to play a significant role in driving supply growth and offsetting the disruption caused by the Middle East outages. As such, market participants will need to pay close attention to developments in these countries, including production forecasts, trade policies, and investment trends.

In conclusion, the aluminium market is set to remain tight in the near term due to persistent outages in the Middle East, but stronger supply growth from Indonesia and China will push the market back into surplus next year. The report by Goldman Sachs highlights the complex and dynamic nature of the industry, and the need for market participants to remain informed and up-to-date on the latest developments in order to navigate the market effectively.