Aluminum supply shock becomes the key variable in the base metals market
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Aluminum supply shock becomes the key variable in the base metals market
JPMorgan believes that attacks on aluminum smelting capacity in the Middle East place about 4% of global supply at risk. In the near term, aluminum prices could quickly rise to $4,000/ton and above, while copper, zinc, and nickel are influenced by Chinese demand, inventories, and supply disruptions, respectively.
- Potential long-term shutdowns at the UAE's Al Taweelah and Bahrain's Alba smelting facilities would involve a combined capacity of about 3.1 million tons per year, potentially shifting the aluminum market from a logistics mismatch to a genuine supply shortfall.
- Global visible aluminum inventories are about 1.9 million tons, covering only about 9 days of demand, with China holding the main buffer at about 1.3 million tons; inventories outside China are about 520 thousand tons, covering about 7 days of demand.
- China's annualized aluminum output is slightly above 44 million tons. A meaningful increase in production would likely require breaking through the 45 million-ton capacity ceiling, which the report considers unlikely in the near term.
- For copper, the 2M26 China demand indicator rose 5% year over year, supported by power grid investment up more than 80% year over year, wind power installations, machinery demand, and product exports; however, macro factors and higher energy prices still weigh on the copper view.
- For nickel, tighter Indonesian ore quotas are expected to shrink global refined nickel supply by 3%, but the market may still be roughly 100 thousand tons in surplus in 2026; diesel shortages in the Philippines could create upside risk in a V-shaped move.
Report interpretation
Overview
This is a JPMorgan base metals supply-and-demand tracking report that evaluates the near-term fundamentals of aluminum, copper, zinc, and nickel amid energy and supply-chain disruptions triggered by the Middle East conflict. The most notable conclusion is that aluminum supply risk has risen sharply; if Middle East smelter shutdowns last for several months, market attention will shift from regional premiums and logistics mismatches to a global physical shortage of primary aluminum.
Core views
The core view is that aluminum has the clearest directional supply shock: attacks on related smelting facilities in the UAE and Bahrain put about 4% of global supply at risk, and aluminum prices could quickly rise to $4,000/ton and above. For copper, micro-level demand in China is improving, especially with power grid investment and dip-buying supporting prices, but the risk of macro demand destruction from rising energy prices still dominates. Zinc has relatively strong Chinese smelting supply but weak downstream galvanizing demand, while inventories remain elevated. Nickel is being disturbed by Indonesian quota policy, sulfur-chain issues, and diesel shortages in Asia, but global inventories and the surplus backdrop still limit a fundamental reversal.
Analysis framework
The report uses a supply-and-demand tracking framework, combining price performance, visible inventories, trade flows, production, end-demand indicators, and regional arbitrage changes. It pays particular attention to Chinese demand, including power grid investment, wind and solar installations, new energy vehicles, home appliances, machinery, and exports, while splitting Chinese inventories and non-China inventories to assess regional buffering capacity and pressure from price divergence.
Methodology notes
Track supply, demand, inventories, and trade flows by metal type
This framework observes marginal changes in the base metals market using monthly and year-to-date data, with a focus on comparing aluminium, copper, zinc, and nickel across supply shocks, inventory buffers, and demand recovery.
China end-demand weighted indicator
The report builds a China metal demand monitoring measure using end-use data such as power grids, wind power, machinery, exports, autos, and home appliances, and uses it to cross-check apparent demand, imports, and inventory changes.
Visible inventory and days of demand coverage
The report converts visible inventories globally, in China, and outside China into days of demand coverage to assess whether available buffers are sufficient during supply disruptions.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Aluminiumcore bullish asset
- Strengths
- Middle East smelting supply attacks, potential long-term shutdowns, low days of coverage for global visible inventories, and tight inventories outside China.
- Weaknesses
- China still has a relatively large inventory buffer, and a smooth outflow of inventory could ease the shortage temporarily.
- Comparison
- Compared with copper, zinc, and nickel, aluminium's supply shock is more direct and the upside logic is clearer.
- Risks
- Middle East shutdowns lasting shorter than expected, shipping recovering faster than expected, and Chinese inventory release exceeding expectations.
- Copperdemand improving but macro headwinds
- Strengths
- Improving China data on power grid investment, wind power, machinery, and exports, with stronger Chinese buying and inventory drawdown after prices pulled back.
- Weaknesses
- Apparent demand remains negative, net imports have fallen, and global visible inventories have risen to about 1.44 million tons.
- Comparison
- Copper's micro fundamentals are improving, but not as directly as aluminium's supply shock, and macro demand destruction risk is more pronounced.
- Risks
- Energy prices continuing to rise, global manufacturing weakening, and copper prices not yet fully reflecting more severe macro pressure.
- Zincstrong supply, demand to be confirmed
- Strengths
- China concentrate imports and smelting output are relatively strong, and inventories have started to draw down slightly recently.
- Weaknesses
- Downstream galvanizing operating rates are below seasonal norms, and visible inventories in China are close to twice last year's level.
- Comparison
- Zinc lacks the kind of supply shock seen in aluminium, and demand improvement is less certain than in copper.
- Risks
- High prices suppressing consumption, insufficient recovery in galvanizing operating rates, and non-sustained inventory drawdowns.
- Nickelbottoming but still in surplus
- Strengths
- Tighter Indonesian ore quotas, Asian fuel shortages, and the risk of Philippine ore export disruption could lift ore prices and create V-shaped rebound risk.
- Weaknesses
- Global visible inventories are up 15% year to date, and the market may still be roughly 100 thousand tons in surplus in 2026.
- Comparison
- Nickel's upside risk comes from supply-chain disruptions, but its fundamentals are not as tight as aluminium's.
- Risks
- Indonesia revising quotas upward in the second half, continued inventory accumulation, and insufficient demand recovery.
Key data
- Global aluminum supply at riskAbout 4%Recent attacks on aluminum smelting infrastructure in the UAE and Bahrain place about 4% of global supply at risk.
- Potentially affected aluminum capacityAl Taweelah about 1.5 million tons/year; Alba about 1.6 million tons/yearIf shutdowns persist, the issue could escalate from a logistics mismatch to a sustained primary aluminum supply shortfall.
- Global visible aluminum inventoriesAbout 1.9 million tons, up 42% year to dateEquivalent to about 9 days of demand; the main inventory buffer is in China.
- China aluminum inventory bufferAbout 1.3 million tonsInventories outside China are about 520 thousand tons, covering about 7 days of demand, making the external market easier to tighten quickly.
- China aluminum supply growthUp 2% year over year in FebruaryApparent consumption also rose about 2% year over year, and China's smelting output is annualized slightly above 44 million tons.
- China aluminum exportsNearly 1 million tons in Jan-Feb, up 13% year over yearIncluding unwrought aluminum and aluminum products, showing that exports remain strong.
- China copper demand indicatorUp 5% year over year in 2M26Mainly driven by power grid investment up more than 80% year over year, wind power installations up 17%, machinery demand up 12%, and product exports up 42%.
- China copper apparent demandDown 3% year over year in 2M26Diverges from the end-demand indicator, mainly due to a 50% year-over-year decline in net imports and inventory accumulation.
- China copper inventoriesAround 420 thousand tons across SHFE and bonded warehousesAfter copper prices fell in the second half of March, Chinese buying strengthened and visible inventories were reduced ahead of schedule by about 80 thousand tons.
- Global visible copper inventoriesAbout 1.44 million tonsCOMEX about 534 thousand tons, LME about 478 thousand tons, and visible inventories in China about 432 thousand tons.
- Nickel market forecastAbout 100 thousand tons surplus in 2026Although tighter Indonesian ore quotas are expected to shrink global refined nickel supply by 3%, the report still sees the market remaining in surplus.
Impact & implications
From an investment standpoint, aluminium is the most direct supply-shock and highest-price-elasticity metal in this round of base metals. If Middle East shutdowns are prolonged, moving Chinese inventory to other Asian markets may require a larger China/non-China price spread incentive. Copper is supported in the near term by Chinese dip-buying, but if energy prices continue to rise and trigger demand destruction, copper still has downside exposure. Zinc needs to see whether galvanizing operating rates can recover to absorb inventories, while nickel looks more like a bottoming price base with insufficient evidence of a trend reversal.
Risks
- Further escalation or de-escalation of the Middle East conflict would materially change the assessment of supply disruptions for aluminium and nickel.
- Continued rises in energy prices could trigger demand destruction in base metals, especially affecting copper.
- Whether Chinese inventories can flow smoothly into other Asian markets is the key uncertainty for how much the aluminum shortage can be buffered.
- Any adjustment to China's 45 million-ton aluminum capacity ceiling would change aluminum supply elasticity.
- If Indonesia raises nickel ore quotas, the expected supply contraction in nickel could be weakened.
What to watch
- The duration of shutdowns and restart progress at Al Taweelah in the UAE and Alba in Bahrain.
- LME aluminium inventory cancellations, regional premiums, and the China/non-China aluminium price spread.
- Outflows from Chinese aluminium inventories and the pace of exports of unwrought aluminum and aluminum products.
- Whether China SHFE plus bonded copper inventories continue to draw down, and whether dip-buying can persist.
- Subsequent changes in China power grid investment, wind power installations, machinery demand, new energy vehicles, and home appliance data.
- Indonesian nickel ore quotas, Philippine ore exports, and Asian diesel supply-chain conditions.