JPM believes the aluminum market will post its largest deficit in 25 years, and constraints across the energy and materials chain are expanding from sulfuric acid to diesel, lithium, and the dollar cycle.
AI summary card
JPM believes the aluminum market will post its largest deficit in 25 years, and constraints across the energy and materials chain are expanding from sulfuric acid to diesel, lithium, and the dollar cycle.
The report is constructive on aluminum, lithium equities and selected wind power/storage names, while highlighting the ripple effects from the Strait of Hormuz, diesel supply, sulfuric acid prices, Indonesian nickel ore, and dollar reserve diversification.
- JPM expects a 1.9Mt primary aluminum deficit in 2026, the largest since 2000, and global visible inventories are also only about 1.9Mt, equal to 9 days of demand.
- The base case for aluminum prices has upside toward $4,000/ton and above, with 2Q26 average price forecast at $3,800/ton.
- The restoration of Zimbabwe lithium export quotas does not change the positive view on lithium equities, but the suspension of mines in Yichun and tighter environmental permits still limit supply recovery.
- The sulfuric acid issue is more of a pricing problem than an availability problem in the near term; if the Strait of Hormuz remains disrupted, diesel may become a mining constraint before sulfuric acid.
- The FX team believes the USD has a weaker medium-term setup after the Iran conflict; the USD share of global reserves has fallen to a 30-year low of 56.8%, and a weaker dollar supports commodity demand.
- Within China's renewables space, JPM prefers offshore wind and overseas turbine sales, then storage, and then the anti-involution theme in polysilicon and solar glass.
Report interpretation
Overview
This is a JPMorgan Asia-Pacific energy, mining, materials and renewables thematic sales/research summary, centered on post–Middle East conflict commodity supply chains, the aluminum supply-demand gap, lithium headlines, sulfuric acid and diesel constraints, the nickel market, a weaker dollar, and the pecking order within China's renewables sector. It is not a single-company deep dive, but rather a macro and industry outlook across multiple sectors and assets.
Core views
The core view is that supply disruptions are materially increasing the upside asymmetry in resource commodities. In aluminum, Middle East supply losses and extremely low inventories leave the market facing a 1.9Mt deficit, with prices potentially breaking above $4,000/ton. In lithium, Zimbabwe quota reinstatement offsets Yichun mine shutdowns, but lithium equities remain attractive in a high-energy-cost environment. In sulfuric acid, a closure of the Strait of Hormuz and Chinese export restrictions could affect more than 50% of seaborne sulfuric acid trade, though near-term effects are more likely to show up as cost pressure; diesel supply may become a faster bottleneck for mining production. On the macro side, the decline in the USD reserve share and policy-driven dollar diversification support commodity demand.
Analysis framework
The report uses a combination of top-down and bottom-up methods: it first assesses the macro impact of geopolitical conflict, dollar reserve allocation, and energy supply chains on commodities, then drills down into supply-demand balances, cost curves, inventory coverage, policy catalysts, and equity expression across aluminum, lithium, sulfuric acid, copper, nickel, and renewables.
Methodology notes
Assessing price upside elasticity through supply losses, demand share, visible inventories, and inventory days.
The aluminum market uses a 1.9Mt deficit, 1.9Mt of visible inventory, and 9 days of demand coverage to show that inventory buffers are extremely thin, supporting upward price revisions.
Evaluating the impact of scenarios such as a closure of the Strait of Hormuz, Chinese sulfuric acid export restrictions, and diesel shortages on mining and metals production.
The report sees sulfuric acid as more of a price issue in the short term, but if transport and energy constraints persist, diesel availability may become a more urgent industry constraint before sulfuric acid.
Screening for better equity expressions based on policy catalysts, earnings trends, cost exposure, and valuation.
Within China's renewables sector, offshore wind and overseas turbine sales are preferred first, then storage, and then the anti-involution theme in solar; within nickel, ANTM IJ and INCO IJ are preferred, while lithium equity exposure focuses on IGO and Qinghai Salt Lake.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Aluminum and related stocksThe supply deficit and low inventories directly support prices and upstream margins.
- Strengths
- A 1.9Mt deficit, 9 days of inventory coverage, Middle East supply losses, and price hikes together create a strong fundamental backdrop.
- Weaknesses
- LME prices previously failed to sustain a break above $3,500/ton, partly due to crowded long positioning among commodity investors.
- Comparison
- The report still sees Chalco, Hongqiao and Vedanta as attractive after their recent share-price performance, with damaged smelting capacity unlikely to recover in 2026.
- Risks
- Demand expectations could be revised down after a ceasefire, supply could recover faster than expected, or long positions could be unwound.
- Lithium equitiesZimbabwe quota restoration and the Yichun shutdown jointly affect supply expectations.
- Strengths
- Four Yichun mines have been shut due to tighter environmental permits, and lithium equities remain favored in a high-price-energy environment.
- Weaknesses
- Zimbabwe export resumption could add near-term supply, and some of the market had already anticipated a restart.
- Comparison
- On the Australia side, IGO is highlighted as having significant mark-to-market revaluation potential under spot prices, while Hong Kong/China clients prefer Qinghai Salt Lake (000792 CH).
- Risks
- Zimbabwe production may recover faster than expected, lithium prices may fall, or Chinese mines may restart.
- Sulfuric acid, copper, nickel and miningSulfuric acid and diesel are key cost and output constraints for mining.
- Strengths
- Rising sulfuric acid prices may lift profitability for some smelters; for example, Jiangxi Copper could see EBITDA raised by more than 36% at spot acid prices.
- Weaknesses
- Copper, nickel and lithium miners face cost pressure, and HPAL and RKEF profitability deteriorates.
- Comparison
- Part of Rio's business is net long because of by-product acid supply; BHP/Rio have smaller exposure at Escondida; CMOC is viewed as the highest risk.
- Risks
- Domestic sulfuric acid prices in China could fall, diesel shortages could worsen, the Strait of Hormuz could remain closed, or Indonesian nickel policy could change.
- China renewablesSector ranking depends on policy, overseas sales, earnings trends and the pace of anti-involution.
- Strengths
- Offshore wind and overseas turbine sales are standouts, storage still has policy catalysts, and CGN nuclear was upgraded to OW.
- Weaknesses
- The pace of anti-involution in solar has been delayed, with industry rationalization pushed from 2027 to 2028.
- Comparison
- The report prefers Goldwind-H and Orient Cables, and sees them as near-term better than Sungrow and Daqo/GCL; Longyuan is downgraded to Neutral.
- Risks
- Policy implementation could disappoint, power prices could weaken, utilization hours could fall, and the solar supply correction could be delayed.
- USD and commoditiesA weaker dollar is usually favorable for USD-denominated commodity demand.
- Strengths
- The USD share of reserves has dropped to a 30-year low, and central banks are still net sellers of USD when the dollar weakens, showing active diversification.
- Weaknesses
- The dollar path is influenced by U.S. policy, interest rates and the evolution of geopolitical conflict.
- Comparison
- Compared with single-commodity supply and demand, dollar weakness provides a broader macro tailwind for commodities.
- Risks
- A return of safe-haven demand into the USD, a shift in U.S. policy, or weaker global growth could offset the benefit of a weaker dollar.
Key data
- 2026 primary aluminum deficit1.9MtJPM calls this the largest deficit since 2000, roughly equal to current global visible inventory.
- Global visible aluminum inventory1.9Mt, about 9 days of demandAbout 75% of inventory is in China, and inventory coverage outside China is very tight.
- Aluminum price upside scenario$4,000/ton and aboveThe base view is that spot aluminum prices have potential to rise toward this level over the coming months; the 2Q26 average price forecast is $3,800/ton.
- Middle East aluminum supply shock2.4MtThe report says the scale of damaged Middle East supply is about 2.4Mt.
- Potential share of sulfuric acid trade affectedMore than 50% of seaborne global sulfuric acid tradeA closure of the Strait of Hormuz and a Chinese sulfuric acid export ban create a dual bottleneck.
- Global sulfur demand share for metal processing20%About 15% of global copper production, or Sx-EW copper, depends on sulfuric acid supply.
- Nickel market 2026 surplus forecastAbout 110kmtThis is below the prior surplus expectation of 420kmt, and the market is expected to move toward balance in 2027-2028.
- Indonesian nickel ore demand and potential supplyDemand 330-340mn wmt, potential supply 290mn wmtThe report expects nickel ore permits to remain meaningfully tight in 2H, keeping the ore market constrained.
- USD share of global reserves56.8%This is a 30-year low, and over the past 2.5 years the share has fallen by 0.3 percentage points per quarter on average.
- Zimbabwe spodumene supply share9%Zimbabwe's previously suspended spodumene supply has received new export quotas, and exports are expected to resume within a week.
Impact & implications
For investment implications, aluminum is the most direct resource commodity on a tight supply-demand footing, and related smelters and upstream names may benefit; lithium equities remain supported by a high-energy-cost backdrop and constrained supply recovery; copper, nickel and rare-earth-related miners need to watch sulfuric acid, diesel and energy-cost shocks; a weaker dollar and reserve diversification provide macro support for commodity demand; and within renewables, investors should focus on policy and earnings divergence rather than simply buying the whole sector.
Risks
- The Strait of Hormuz and the path of the Middle East conflict remain highly uncertain, and could simultaneously affect aluminum, diesel, sulfuric acid, oil and gas, and transportation costs.
- If supply recovers faster than expected after a de-escalation, the upside for aluminum and some resource commodities could be reduced.
- If domestic sulfuric acid prices in China fall, the relative preference for smelters outside China will weaken.
- Lithium supply recovery, mine restarts, or weaker new-energy demand could pressure lithium equity performance.
- Industry rationalization in renewables has been delayed to 2028, meaning solar-chain earnings recovery may be slower than expected.
- If the dollar strengthens again or global demand slows, the improvement in commodity fundamentals could be offset.
What to watch
- Whether aluminum prices can break above and hold above $3,500/ton, and whether they approach $4,000/ton over the coming months.
- The pace at which damaged or idled smelting capacity at EGA, Alba and others comes back online in 2026.
- Developments in the Strait of Hormuz, diesel availability, and diesel reserve policy in Western Australia.
- Execution of Zimbabwe lithium export quotas, the scope of mine shutdowns in Yichun, and the pace of tighter environmental permits.
- Chinese sulfuric acid export policy, domestic sulfuric acid prices, and the extent of relative benefits for non-China smelters.
- Indonesian nickel ore permits, ore supply gaps, and HPAL/RKEF margin trends.
- USD reserve share, central bank net USD buying and selling, and the direction of the dollar index.
- Implementation progress in Chinese wind power, storage, nuclear, and solar anti-involution policies.