Morgan Stanley expects Middle East supply reductions to drive aluminum prices higher; target price announced.

Investing.com - Morgan Stanley maintains a positive outlook on aluminum prices due to increased shutdowns of Middle Eastern smelters and ongoing disruptions in Strait of Hormuz shipping. The firm reports that the region is shutting down a capacity of 564,000 tons per year, accounting for 0.8% of global capacity, which worsens the supply tightness in the global market.

Shutdowns in the Middle East further restrict supply, with Mozambique having shut down a 500,000-ton-per-year smelter earlier this month. The region produces 9% of the world’s aluminum but only 3% of alumina and 1.3% of bauxite, making it heavily dependent on raw materials imported through the blocked strait.

Raw material supply is becoming a concern for smelters in the region, which require about 2 tons of bauxite to produce 1 ton of alumina, and 2 tons of alumina to produce 1 ton of aluminum. According to a March 11 report by Platts, alumina inventories at Alba in Bahrain are very low, while United Arab Emirates’ Gulf Aluminium only has 2 to 3 weeks of buffer stock.

Morgan Stanley has set a bullish target price of $3,700 per ton for aluminum in fiscal year 2026. The firm notes that, besides supply disruptions in the Middle East, factors such as constrained Chinese supply, slowed power supply, Indonesia’s capacity ramp-up, and challenges in expanding production elsewhere also support prices.

The forward curve for aluminum has shifted to a steep contango with spot premiums, indicating market tightness, while LME warehouse stocks are at their lowest since May 2025. Regional premiums are rising, with combined prices in Japan, Europe, and the US exceeding the LME benchmark price.

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