Middle East supply recovery faster than expected, Goldman Sachs cuts aluminum price forecast

The pace of recovery in Middle East aluminum smelting capacity is exceeding market expectations, completely reshaping the global aluminum supply-demand landscape.

According to information from the Zephyr Trading Desk, a Goldman Sachs report dated July 6 states that it has significantly lowered its average LME aluminum price forecast for 2027 from the previous $2,950/ton to $2,700/ton, while cutting its Q4 2026 forecast from $3,200/ton to $2,950/ton—both well below the current futures price of $3,056/ton.

The core logic chain is clear: Faster restart of the Al Taweelah smelter + accelerated overall supply recovery in the Middle East → 2026 supply forecast raised by 620k tons, 2027 raised by 920k tons → 2026 market deficit narrows from 720k tons to 100k tons, 2027 surplus expands from 590k tons to 1.5 million tons → Inventory rebuild pressures smelting margins → Aluminum prices under downward pressure.

At the same time, Indonesia's new supply in 2027 is expected to increase by approximately 1.2 million tons year-on-year (accounting for 1.5% of global supply), further reinforcing Goldman Sachs' bearish logic.

This means the downside for aluminum prices has been fully unlocked. Goldman Sachs explicitly recommends maintaining a short position in LME aluminum for December 2027, and strongly recommends the cross-commodity arbitrage strategy of "long copper, short aluminum."

Al Taweelah Smelter: Restart progress exceeds expectations, becoming the direct catalyst for the forecast downgrade

The restart progress of the Al Taweelah aluminum smelter (under UAE's Emirates Global Aluminium, EGA) is the direct trigger for Goldman Sachs' downward revision.

According to the latest news, hot metal production at the plant has resumed, with approximately 7% of the electrolytic cells back online. Based on this, Goldman Sachs has significantly advanced its timeline for the smelter to reach full capacity from the previously estimated end of 2027 to end of Q1 2027.

Notably, EGA's official statement indicates that returning to pre-accident capacity levels may take up to a year, and currently only about 20% of the electrolytic cells have completed the removal of frozen metal—a necessary step before restarting after the power outage caused metal solidification inside the cells. However, the company is actively pursuing an accelerated timeline, and market feedback also suggests room for a faster ramp-up.

Indonesia's Supply Expansion: Another Pillar of the 2027 Bearish Thesis

While the accelerated supply recovery in the Middle East is important, Goldman Sachs emphasizes that its bearish view on aluminum prices for 2027 is driven to a greater extent by supply expansion in Indonesia.

Goldman Sachs estimates that Indonesia's aluminum capacity will contribute approximately 1.2 million tons of year-on-year incremental global supply in 2027, equivalent to 1.5% of global supply growth. This structural supply addition, combined with the recovery of Middle Eastern capacity, constitutes the two major drivers of the roughly 1.5 million ton surplus expected in 2027.

From the perspective of the global supply-demand balance, global primary aluminum production in 2027 is projected to reach 620k tons, up 5.1% year-on-year. Meanwhile, primary aluminum consumption is expected to be 920k tons, up 3.0% year-on-year, with supply growth clearly outpacing demand growth.

As the market transitions to a surplus of about 1.5 million tons in 2027, Goldman Sachs expects global aluminum inventories to rebuild continuously. Total inventories are projected to rise from 720k tons in 2026 to 100k tons in 2027, with inventory coverage measured in days of consumption increasing from 45 days to 51 days.

The inventory rebuild will directly pressure smelter margins—Goldman Sachs expects smelting margins to normalize from recent high levels. This mechanism forms a self-reinforcing logic for price declines: surplus → inventory accumulation → margin compression → price pressure.

Aluminum prices have already reacted, but Goldman Sachs believes the downside has not yet been fully realized

Aluminum prices have already fallen significantly following the initial news of de-escalation in the Middle East, dropping from around $3,400/ton to $3,100/ton, reflecting a repricing of the supply disruption premium from the Middle East, compounded by a sell-off triggered by the tech/AI sector and macro risk aversion driven by the repricing of Fed policy expectations.

However, Goldman Sachs' latest forecast indicates that current price levels still have substantial downside relative to its projections.

The firm lowered its Q4 2026 LME aluminum price forecast from $3,200/ton to $2,950/ton; and cut its full-year 2027 average LME aluminum price forecast from $2,950/ton to $2,700/ton, a level far below the current forward curve pricing of $3,056/ton.

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