Global aluminium market: Aluminium inventories have tightened sharply, but JPMorgan expects supply growth to restore market balance by 2027

Overview

JPMorgan's dashboard reviews global aluminium supply, demand, inventories, prices and listed-producer valuations. Its central conclusion is that exceptionally low visible inventories are supporting a tight current market, but expected production recovery in the Middle East and growth in Indonesia should progressively remove the deficit and produce a balanced market by 2027.

Core views

Global aluminium fundamentals softened through August, but the inventory picture tightened materially. Global production was down 1% year to date, as a sharp Middle East reduction—almost 3Mtpa annualised since April—was mostly offset by about 2% growth in China. China was running just above its 45Mtpa production cap. The report flags drought conditions in Yunnan, a province producing about 6Mt of aluminium, as a supply factor to monitor even though it sees no imminent hydro-power stress. Demand was also down 1% year to date through August. China remained resilient, with consumption up 2% and primary aluminium demand rising from 31.0Mt to 31.5Mt, but this was offset by a 5% decline in demand in the rest of the world. The demand split helps explain why physical stocks can be tight despite weak global aggregate demand: Chinese consumption and inventory draws have remained sufficiently firm while output disruptions constrained supply elsewhere. Visible global inventories declined by about 900kt from around 1,840kt in mid-May to 920kt in late September, falling below the comparable seasonal level of the prior five years. Shanghai Futures Exchange stocks accounted for much of the move, declining from about 1,400kt in May to about 700kt. China recorded a 171kt inventory draw year to date through August, versus a 137kt draw in the corresponding prior-year period. Aluminium was up 8% year to date, but JPMorgan notes that prices have been range-bound at US$3,200-3,400/t since early August. The report attributes this restraint to a balance between current inventory tightness and expectations of rising future oversupply as Middle East capacity recovers and Indonesian output grows. The forward curve remains in backwardation, while the team forecasts a surplus in 2028. Prices are also hovering around marginal costs, making the cost curve an important reference point for assessing price support. The timing in JPMorgan's supply-and-demand outlook is central to its conclusion. Its balance table shows a projected global deficit of 1,665kt in 2026, a near-balanced 28kt deficit in 2027, and an 848kt surplus in 2028. Indonesia is expected to add about 2.6Mt of production between 2025 and 2028, while Middle East production is expected to recover from its current disruption. The report therefore expects the market to move toward balance by 4Q26, limiting the scope for further fundamentals-driven price outperformance. The report identifies a potential reopening of China's semi-export arbitrage, but expects any effect to be reflected mainly in temporary front-end backwardation rather than a sustained rally across the curve. Its principal upside risk is instead copper-led: a high copper-to-aluminium ratio could encourage investor rotation toward relatively cheaper aluminium and increase expectations for substitution demand. For equities, JPMorgan says the sector trades at an average 7x EV/EBITDA with dividend yields above 4%. It highlights Rio Tinto, Hindalco, Vedanta and Press Metal as key Overweight calls. Within EMEA, it recently downgraded Norsk Hydro to Neutral because of energy-cost concerns at the Alunorte refinery in Brazil, including the potential need to source additional spot LNG in 4Q. JPMorgan's 3Q and 4Q EBITDA estimates for Norsk Hydro are about 10% and 12% below Bloomberg consensus, respectively, and it places the company on negative catalyst watch ahead of 3Q results.

Analysis framework

JPMorgan combines regional production and demand tracking with inventory, forward-curve and marginal-cost analysis to judge near-term market tightness and the future supply-demand balance. It then links the commodity outlook to producer cost exposure, earnings estimates, valuation multiples and company-specific ratings.

Methodology notes

• Industry AnalysisSupply-demand framework

  Global aluminium supply-demand balance

  The report compares regional production and primary use, then projects the resulting global balance through 2028 to assess when current tightness may turn into surplus.

• Industry AnalysisCost curve analysis

  Marginal-cost and producer cost-curve analysis

  JPMorgan compares aluminium and alumina prices with marginal costs and presents smelter, refinery and bauxite cost curves to frame price support and producer exposure.

• Valuation methodsEV/EBITDA valuation

  Forward EV/EBITDA comparison

  The report compares covered producers using 2027 and 2028 EV/EBITDA multiples, alongside P/E, dividend yield and leverage metrics.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Rio Tinto Limited (RIO.AX)

  Key Overweight aluminium-sector exposure

  Strengths

  JPMorgan assigns an Overweight rating and a A$205.0 target price versus a A$163.5 reference price.

  Comparison

  2027 EV/EBITDA of 6.1x versus the coverage average of 7.0x.

• Hindalco (HNDL IN)

  Key Overweight aluminium-sector exposure

  Strengths

  JPMorgan assigns an Overweight rating and a Rs1,205.0 target price versus a Rs955.1 reference price.

  Comparison

  2027 EV/EBITDA of 6.4x versus the coverage average of 7.0x.

• Vedanta (VEDL IN)

  Key Overweight aluminium-sector exposure

  Strengths

  JPMorgan assigns an Overweight rating and a Rs312.0 target price versus a Rs258.7 reference price.

  Comparison

  2027 EV/EBITDA of 3.2x and 2027 dividend yield of 7.6%.

• Press Metal (PMAH MK)

  Key Overweight aluminium-sector exposure

  Strengths

  JPMorgan assigns an Overweight rating and a RM9.0 target price versus a RM7.5 reference price.

  Comparison

  2027 EV/EBITDA of 13.7x versus the coverage average of 7.0x.

• Norsk Hydro (NHY.OL)

  Covered producer on negative catalyst watch

  Weaknesses

  JPMorgan is concerned about energy costs at the Alunorte refinery in Brazil and potential spot LNG purchases in 4Q.

  Comparison

  JPMorgan's EBITDA estimates are about 10% below Bloomberg consensus for 3Q and 12% below for 4Q.

  Risks

  Additional spot LNG requirements could raise costs.

Key data

• Global aluminium production48.6MtYear to date through August 2026, down 1% year on year
• Global aluminium demand48.7MtYear to date through August 2026, down 1% year on year
• China aluminium demand31.5MtYear to date through August 2026, up 2% year on year
• Rest-of-world aluminium demand18.4MtYear to date through August 2026, down 5% year on year
• Visible global aluminium inventory920ktLate September, down about 900kt from the mid-May peak of about 1,840kt
• Aluminium price performance+8% YTDPrices were range-bound at US$3,200-3,400/t since early August
• Global market balance-1,665kt / -28kt / +848ktJPMorgan forecast balance for 2026E, 2027F and 2028F, respectively
• Indonesia aluminium production growthc.2.6MtExpected increase between 2025 and 2028

Impact & implications

The report sees low inventories as supporting near-term aluminium conditions, but expects expanding Indonesian supply and recovering Middle East output to cap a sustained fundamentals-led price advance. It favors selected producers with Overweight ratings while highlighting energy-cost pressure as a specific issue for Norsk Hydro.

Risks

• Copper-led investor rotation could lift aluminium if the copper-to-aluminium ratio remains high and investors view aluminium as relatively cheap.
• Higher substitution-demand expectations could strengthen aluminium demand.
• Drought conditions in Yunnan could affect hydro-power availability for a province producing about 6Mt of aluminium.
• Norsk Hydro faces potential energy-cost pressure if it needs additional spot LNG in 4Q.

What to watch

• The pace of Middle East aluminium production recovery.
• Indonesian production growth and its contribution to future global supply.
• Yunnan hydro-power conditions and any impact on Chinese smelter output.
• Further draws or rebuilding in visible inventories, particularly SHFE stocks.
• Whether the Chinese semi-export arbitrage reopens and affects front-end backwardation.
• Norsk Hydro's 3Q results and energy-cost outlook.