Overseas Research | Goldman Sachs: Aluminum prices are supported in the short term, but conflicts are unlikely to change the medium- to long-term downward trend

Ask AI · How do Middle East conflicts reshape the short-term risk premium logic for aluminum prices?

Caixin Media, March 30 (Reporter: Xia Junxiong, Editor: Xia Junxiong) Goldman Sachs said in a recent research note that this year, the global aluminum market will see a severe supply shortfall due to disruptions from the Middle East. As demand weakens and the impact of hedging against the supply shortage fades, aluminum prices will receive support in the short term, but will fall back in the medium to long term.

Goldman’s commodities analyst Aurelia Waltham and others released a report on March 24 analyzing the intertwined impact of supply disruptions and slowing demand on the global aluminum market.

It needs to be noted that after Iran attacked two key aluminum production bases in the Middle East over the weekend, Goldman Sachs quickly issued a new report on the aluminum supply shock.

Two large aluminum plants in Bahrain and the United Arab Emirates have recently confirmed that they were attacked by Iran. These two plants belong to Bahrain Aluminium Company and UAE Global Aluminium Company, respectively.

In the new report, Goldman Sachs did not change its assessment of the aluminum market—“roughly balanced supply and demand for the full year, with the price center of gravity falling in the medium term.” However, against the backdrop of an escalation in the Middle East conflict and damage to actual production capacity, it has clearly upgraded the short-term risk premium pricing logic: supply shocks will dominate price trends in the short term. The elasticity of aluminum prices to output losses has increased significantly, and the market has entered a typical event-driven phase.

Under extreme scenarios, this year’s LME aluminum price average could reach $3,400

Goldman Sachs said that the Middle East accounts for about 9% of global aluminum output. The region’s main supply goes to markets outside China. Among them, aluminum production in the UAE, Bahrain, and Qatar accounts for 4%, 2%, and 1% of the global total, respectively.

(Aluminum production capacity in Middle Eastern countries, from left to right: UAE, Bahrain, Saudi Arabia, Iran, Oman, and Qatar)

Due to the closure of the Strait of Hormuz and issues with natural gas supply, Qatar’s aluminum production capacity utilization rate is currently 60%. It is expected to recover starting in June, and rise back to 100% by year-end.

For Iran, due to damage to energy infrastructure and disrupted logistics through the Strait of Hormuz, it is expected to reduce output by 30% (about 200,000 tons).

Even if the impact of direct attacks on energy facilities is not considered, if the Strait of Hormuz blockade continues beyond mid-May, the production capacity of the UAE and Bahrain will also face the risk of shutdown due to raw material shortages.

Because of the nature of smelters, restarting after a cold idle (cold idled) requires more than six months. This means the supply shock has persistence.

Goldman Sachs warned that under extreme conditions—i.e., Bahrain, the UAE, and Qatar shutting down completely—global aluminum supply shortages in the second quarter of this year would expand to 2 million tons, and the average LME aluminum price in 2026 would reach $3,400 per ton. By contrast, Goldman’s baseline expectation for this year’s LME aluminum price in its report last week was $3,100 per ton (before the attacks on the two major aluminum plants in the Middle East).

Slowing demand offsets the supply shock

In the March 24 report, Goldman Sachs emphasized the hedging impact of weakening aluminum demand on supply shortages.

Goldman Sachs said in that report that due to soft global GDP growth and high energy prices, global demand for primary aluminum in 2026 will decrease by 600,000 tons.

Under an empirical rule of thumb, for every 1 percentage point decline in global GDP, aluminum demand growth will fall by 1.9 percentage points.

Goldman Sachs expects that in 2026, global demand for primary aluminum will increase year over year by only 0.1%, far below last year’s 2.7%. The firm expects that there will be a 550,000-ton surplus in the global aluminum market in 2026.

Analysts also pointed out that the alternative effect is weakening. As copper prices have recently fallen, the copper/aluminum ratio dropped from 4.3 to 3.8. This may reduce downstream switching from copper to aluminum, further suppressing aluminum demand growth.

In the power sector, aluminum sometimes becomes an alternative to copper due to advantages such as lower price and lighter weight, especially when copper prices are high.

In addition to weaker demand, Goldman Sachs also cited other suppressing factors. The market is already going heavily long on aluminum prices, and speculative net longs are at the 95th percentile over the past five years (extremely bullish). This limits room for further upside.

Medium- to long-term outlook (2027-2028)

Goldman Sachs believes that the new supply cycle will begin in the second half of 2026.

The report says it expects Indonesia’s output to increase by 725,000 tons in 2026 and add another 900,000 tons in 2027.

Goldman Sachs expects that China’s aluminum output in 2026 will grow by 670,000 tons, nearing the annual capacity upper limit of about 45 million tons. Overseas, investments led by China in Angola, Vietnam, Kazakhstan, and Saudi Arabia will drive a new wave of supply.

(Goldman Sachs capacity forecasts: dark blue for China, light blue for Indonesia, gray for other countries globally)

Analysts said that global aluminum supply surplus will further intensify. It is expected that the global market surplus will reach 1.5 million tons in 2027, rising to 1.8 million tons by 2028.

In terms of demand structure, power grids and infrastructure, electric vehicles, and renewable energy will be the main consumption areas.

Regarding price forecasts, Goldman Sachs expects the average LME aluminum price to fall to $2,700 in 2027 and to $2,600 in 2028.

(Caixin Media, Xia Junxiong)