Goldman Sachs: Middle East conflict has caused a shortage in the aluminum market this year, but after supply returns, a significant surplus will emerge next year

Ask AI · How can the Middle East conflict instantly reverse the global aluminum market supply and demand balance?

Military conflicts in the Middle East are reshaping the global aluminum market landscape.

According to Chasing Wind Trading Platform, in its March 31 report, Goldman Sachs urgently raised its 2026 Q2 LME aluminum price target to $3,450/ton (previously $3,200/ton). Its full-year average price forecast was also raised from $3,100/ton to $3,200/ton.

Analysts warn that, due to missile and drone attacks launched by the Middle East targeting two key aluminum industry facilities, the global aluminum market’s supply-demand pattern has been completely reversed—turning abruptly from a previously expected surplus of 550k tons to a shortage of 570k tons.

However, the upside potential for aluminum prices is limited and clearly bounded. Goldman Sachs said that the shortage is highly concentrated in 2026 Q2 (a gap of 1.2 million tons). As Indonesia’s new production capacity is gradually released throughout the second half, the market in Q4 will shift to a modest surplus (about 190k tons). By 2027, with supply returning on a large scale, the global aluminum market will face a significant oversupply as high as 1.3 million tons. At that time, the aluminum price average will fall sharply from $3,200/ton to $2,750/ton. The upward window is concentrated in the first half of this year, so getting the timing right is crucial.

Two Middle East aluminum giants hit by attacks, together accounting for 4% of global capacity

The core of this disruption is that two major aluminum facilities in the Middle East were damaged at the same time.

The Al Taweelah smelter (annual capacity 1.6 million tons) under UAE’s EGA was hit by missile and drone attacks. The company’s announcement shows that it suffered “serious” damage. Bahrain Aluminum (Alba), a 1.6 million-ton capacity facility located in Bahrain, was also struck on March 28 (Saturday). Damage assessment work is still ongoing.

The two facilities together have annual production capacity of 3.2 million tons, accounting for about 4% of the world’s total primary aluminum production. And as the extent of damage at both sites is still unclear, it creates a major uncertainty on the supply side.

Goldman Sachs points out that even before this attack occurred, Alba had proactively implemented controlled shutdowns for production lines 1 to 3 on March 14. This portion of capacity accounts for 19% of its total capacity. This military strike further intensifies market concerns about the overall supply outlook for Middle Eastern aluminum.

A supply shock outweighs a demand decline; aluminum price targets raised across the board

Faced with the situation above, Goldman Sachs has made a fundamental adjustment to its 2026 aluminum market supply-demand forecast.

Specifically, Goldman Sachs sharply lowered its forecast for UAE aluminum production in 2026 from 2.7 million tons to 1.95 million tons, and lowered its forecast for Bahrain aluminum production from 1.5 million tons to 1.1 million tons.

Analysts explicitly emphasized that the negative impact of this supply interruption exceeds the downward pressure on demand brought by the slowdown in global GDP growth. After offsetting the two, the net effect on the aluminum market is still a clearly significant tightening.

On the price forecast side, Goldman Sachs raised its 2026 full-year average LME aluminum price forecast from $3,100/ton to $3,200/ton. Its Q2 price target was also raised from $3,200/ton to $3,450/ton, which is basically in line with current futures prices.

Shortage peaks in Q2; eases gradually in the second half as Indonesia’s new capacity is released

From the time dimension, the intensity of this aluminum shortage is highly concentrated in 2026 Q2.

Goldman Sachs expects that the global aluminum market deficit in Q2 2026 will be as high as 1.2 million tons, forming the absolute main contributor to the annual shortage of 570k tons.

Entering the second half, supply-demand pressure is expected to ease at the margin. Goldman Sachs predicts that as Indonesia’s incremental production capacity ramps up gradually, the global aluminum market will return to a modest surplus in 2026 Q4, with a surplus of about 190k tons. This seasonal rotation of supply and demand means that the strongest driver for aluminum prices will be concentrated in the first half of this year; in the second half, as supply recovers, price pressure will gradually increase.

Extreme scenario stress test: aluminum average could reach $3,400/ton, exceeding the peak of Europe’s energy crisis

Goldman Sachs also conducted stress tests on extreme scenarios.

If the combined production of Bahrain, the UAE, Qatar, and Iran in 2026 falls by 50% (compared with an approximately 30% reduction in the baseline scenario), global inventories would drop to a critical low level. Even if demand declines due to downward revisions to the economic growth outlook are overlaid, the full-year average aluminum price is still expected to reach $3,400/ton.

At this level, the annual average aluminum price would be $700/ton higher than the annual average during the European energy crisis in 2022, setting a historical record.

Goldman Sachs believes that the key triggers for upside risks include: the actual degree of destruction of the damaged facilities exceeding current assumptions; further military strikes leading to the shutdown of more capacity; and passive shutdowns caused by disruptions in raw material or natural gas supply.

In 2027, supply returns on a large scale; the aluminum market shifts from shortage to a 1.3 million-ton oversupply

Although Goldman Sachs slightly increased its forecast for the 2027 aluminum average price to $2,750/ton (from $2,700/ton), its overall outlook for next year’s aluminum market remains cautious.

Analysts explicitly expect that in 2027, the global aluminum market will see a significant oversupply of up to 1.3 million tons. In 2027 Q4, the forecast aluminum price is only $2,600/ton. By then, aluminum smelters’ profit margins will once again be reasonably matched with inventory coverage days.

The timing of the supply return has basically been set.

Goldman Sachs points out that restarting cold shutdown capacity will take at least 6 months, and the restart cycle for damaged capacity is likely to be even longer.

However, as new capacity continues to ramp up in Indonesia and other regions, the market in 2027 will quickly switch from shortage to a significant oversupply. From 2028 onward, Goldman Sachs’ forecasts for the aluminum market’s supply-demand balance and prices remain unchanged—low-cost incremental supply will keep the aluminum market in a persistent oversupply state, with long-term downward pressure on the price. When allocating aluminum-related assets, accurately capturing the timing of the supply-demand rotation cycle is the key variable that will determine the success or failure of an investment.