Aluminum prices fell sharply on supply growth concerns, but the 2026 deficit still supports prices in 2H

Overview

This report is J.P. Morgan's dashboard-style update on the global aluminum value chain, covering aluminum prices, inventories, supply-demand balance, alumina and bauxite, cost curves, Chinese production and trade, global regional supply and demand, and the valuations and ratings of major producers. The core tension is that the spot market remains in deficit, but visible inventories have not declined materially, and the market has started to price in looser supply from 2027 to 2028 ahead of time.

Core views

The report argues that the aluminum market remains tight in 2026, but prices have already fallen sharply due to multiple expectation shocks. In the short term, hidden inventories have buffered the supply shock from the Middle East, while visible inventories remain high, keeping investors cautious on aluminum prices and aluminum equities; however, as hidden inventory cover may be down to only about two months, the deficit may gradually translate into visible inventory declines in regions such as China, thereby supporting SHFE and LME prices. In the medium term, supply and demand are close to balance in 2027, and the market may shift to surplus in 2028 after new supply from Indonesia and the Middle East is released; therefore, the forward curve remains in slight backwardation.

Analysis framework

The report uses a framework combining commodity supply-demand balance, visible and hidden inventories, regional production and demand, cost curves, price curves, speculative positioning, relative commodity performance, and listed company valuation comparisons. Its equity views are based on earnings exposure to aluminum, alumina, and bauxite, EV/EBITDA, PE, dividend yield, net debt/EBITDA, implied upside to target price, and company ratings.

Methodology notes

• Supply-demand analysisGlobal aluminum supply-demand balance

  Determine price direction through primary aluminum production, demand, inventory changes, and regional supply and demand.

  The report focuses on comparing the path of a 2026 deficit, a small 2027 deficit, and a 2028 surplus to explain the contradiction between tight spot conditions and caution on the forward market.

• Inventory analysisVisible inventory and hidden inventory

  Visible inventory includes LME, Comex, and China's visible inventory; hidden inventory refers to stocks held by producers, traders, and consumers that are not reflected in exchange data.

  J.P. Morgan believes hidden inventories previously buffered the Middle East supply shock, but the cover period may be down to only about two months, so subsequent deficits may be more clearly reflected in visible inventory declines.

• Cost analysisMarginal cost curve

  Use aluminum smelting, alumina refining, and bauxite cost curves to assess downside price support and earnings elasticity.

  The report presents the 2025 cost curves for aluminum smelting, alumina refining, and bauxite, and notes that alumina prices are up about 13% year-to-date but remain within the cost curve range.

• Equity valuationCovered company valuation comparison

  Compare the market capitalization, enterprise value, implied upside to target price, EV/EBITDA, PE, dividend yield, and leverage of aluminum-related companies.

  This framework is used to differentiate the risk-reward profiles of companies such as Rio Tinto, South32, Alcoa, Norsk Hydro, Vedanta, Ma'aden, Hindalco, Aluminum Corporation of China, China Hongqiao, and Press Metal.

Asset mapping & comparison

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

• Primary aluminum

  Core commodity exposure

  Strengths

  A 1.7Mt deficit is still expected in 2026, and hidden inventory drawdowns may support prices.

  Weaknesses

  Visible inventories remain high, demand is down year-to-date, and the market is concerned about new supply.

  Comparison

  Compared with 2026 tightness, 2027 moves toward balance and 2028 turns to surplus.

  Risks

  New supply from Indonesia and the Middle East, continued weak demand, and slower-than-expected inventory drawdowns.

• Alumina

  Upstream raw material in the aluminum value chain

  Strengths

  Prices are up about 13% year-to-date, supported by higher Chinese net imports and relatively low domestic output.

  Weaknesses

  Prices are still within the cost curve, and upside elasticity is constrained by costs and supply.

  Comparison

  Compared with primary aluminum, alumina is more directly affected by Chinese production, imports, and refinery costs.

  Risks

  Recovery in Chinese alumina production, changes in imports, and volatility in energy and caustic soda costs.

• Bauxite

  Upstream resource for alumina production

  Strengths

  China's imports are at record levels, and depletion of domestic reserves is driving import demand.

  Weaknesses

  Concentration of supply sources and changes in trade flows may create volatility.

  Comparison

  Compared with aluminum and alumina, bauxite is more driven by resource constraints and trade flows.

  Risks

  Supply disruptions in source regions such as Guinea, transportation and policy risks, and changes in the pace of Chinese imports.

• Aluminum producer equities

  Equity mapping of aluminum prices and value-chain profits

  Strengths

  Most covered names remain Overweight, and some companies have high implied upside to target price.

  Weaknesses

  Investors remain cautious on market loosening in 2027/28, and equity valuations are constrained by forward supply-demand expectations.

  Comparison

  Rio Tinto Ltd., Hindalco, Norsk Hydro, Vedanta, South32, Press Metal, Aluminum Corporation of China, and China Hongqiao are Overweight; Rio Tinto Plc, Ma'aden, and Alcoa are Neutral.

  Risks

  Falling aluminum prices, rising costs, weak demand, supply exceeding expectations, and company valuations already reflecting part of the upside.

Key data

• Aluminum price changeAbout US$3,200/t, down about 17% from early JuneReasons for the decline include high inventories, soft demand, supply expectations after the reopening of the Strait of Hormuz, and concerns over Indonesian supply growth.
• Global visible inventoriesAbout 1.6MtAbout 1Mt above the same period last year and only 145kt below the 1Q26 peak.
• 2026 primary aluminum deficit forecast1.7MtForecast from J.P. Morgan's commodities research team.
• Implied inventory drawdown from 2Q26 to 4Q262.3MtAssumes Middle East smelters restart from 3Q26.
• 2H 2026 aluminum price forecastAverage price of US$3,750/t, with potential to reach US$4,000/tReflects expectations of short-term supply-demand tightness and inventory drawdowns.
• 2027 supply-demand balanceDeficit of 411kt, about 0.5% of demandThe market shifts from 2026 tightness toward a more balanced state.
• 2028 supply-demand balanceSurplus of 500ktMainly driven by new supply coming from Indonesia and the Middle East.
• China primary aluminum productionSlightly above a 45Mtpa annualized level from Feb-JunChina's supply is still growing.
• Global apparent demandDown 2% year-to-date through JuneWeak demand is an important factor behind the pullback in aluminum prices.
• China bauxite importsUp 18% year-to-dateDriven by depletion of domestic reserves, China continues to import bauxite at record levels.
• Alumina priceUp 13% year-to-dateThe report says it remains within the cost curve range.
• AlcoaAA/$45.27/NeutralThe report discloses the company's price as of the close on July 23, 2026, with a Neutral rating.
• Ma'aden1211.SE/SRls58.45/NeutralThe report discloses the company's price as of the close on July 23, 2026, with a Neutral rating.
• Rio Tinto plcRIO.L/6,856p/NeutralThe report discloses the company's price as of the close on July 23, 2026, with a Neutral rating.

Impact & implications

For commodity investors, the short-term price pullback does not necessarily mean weaker supply and demand; if hidden inventories are depleted and turn into visible inventory drawdowns, aluminum prices may still find support in 2H 2026. For equity investors, there are still opportunities in 2026 earnings elasticity and valuation upside, but looser supply in 2027-2028, weak demand, and high inventories will limit valuation expansion, favoring a more differentiated allocation focused on cost position, asset quality, and implied upside to target price.

Risks

• Global demand remains weak, with a broader decline in apparent demand.
• Visible inventories remain elevated, and hidden inventory consumption fails to translate into visible inventory declines as expected.
• New supply from Indonesia and the Middle East is released faster than expected, causing the market to loosen earlier in 2027-2028.
• China's primary aluminum production continues to grow, weakening the global supply-demand deficit.
• Volatility in alumina, bauxite, energy, and caustic soda costs affects profit distribution across the value chain.
• Forward-curve backwardation and expectations of a 2028 surplus weigh on aluminum equity valuations.
• Geopolitics, trade routes, and changes in expectations related to the Strait of Hormuz affect supply sentiment.

What to watch

• Whether LME, Comex, and China's visible aluminum inventories begin to decline continuously.
• Whether China's SHFE aluminum prices and aluminum product exports remain sustained, to judge whether global prices are high enough to attract Chinese exports.
• The restart progress of Middle East smelters in 3Q26 and the actual speed of production recovery.
• Delivery of new Indonesian supply from 2025 to 2028; the report notes J.P. Morgan estimates an increase of 2.6Mt.
• Whether China's primary aluminum production continues to remain above a 45Mtpa annualized level.
• Whether global aluminum demand and PMI indicators improve from year-to-date negative growth.
• Changes in China's bauxite imports and net alumina imports.
• Whether aluminum prices can move toward US$4,000/t and whether the average price in 2H 2026 can approach US$3,750/t.