Goldman Sachs Raises Aluminum Price Forecast: Middle Eastern Supply Disruption Fails to Alter Medium-Term Oversupply Dynamics

Overview

This report examines the aluminum market’s ‘two supply shocks’: the recent disruption caused by geopolitical tensions in the Middle East, which has tightened the 2026–2027 balance and supported short-term prices; and the structural surge in supply led by Indonesia, with China playing a supporting role, which will offset Middle Eastern losses over the medium term, returning the market to surplus starting in 2027. Based on this, Goldman Sachs has raised its short-term aluminum price forecasts while maintaining a medium-term bearish stance and adjusting its trading strategy to reflect this structural oversupply outlook.

Core views

The slower-than-expected recovery of Middle Eastern supply is underpinning near-term prices. Damaged smelters require repairs, and reduced capacity must be restarted gradually, meaning that even after the Strait of Hormuz reopens, Middle Eastern refineries cannot immediately return to full production. Goldman Sachs has lowered its 2026 and 2027 production forecasts for the region by approximately 660,000 tonnes and 1 million tonnes, respectively, projecting that Bahrain and the UAE will restore output to pre-conflict levels by mid-2027 and late 2027, respectively. This shift results in a global aluminum deficit of 720,000 tonnes in 2026, reversing into a surplus of 590,000 tonnes in 2027 (previously projected as a 1.3-million-tonne surplus). Indonesia is driving medium-term supply growth. Goldman Sachs has increased its 2026 and 2027 primary aluminum production forecasts for Indonesia to 1.7 million tonnes and 2.9 million tonnes, respectively, thanks to faster commissioning of projects such as Adaro, Taijing Morowali, and Juwan Weda Bay, as well as the inclusion of Harita Danantara Inalum’s output starting in 2027. Year-to-date, Indonesian production is up roughly 89% year-over-year, signaling smooth project progress. With profit margins elevated, producers are prioritizing rapid ramp-up by generating their own power or diverting electricity from nickel operations; power availability is no longer a bottleneck for 2026 projects. China’s supply provides additional offset. Goldman Sachs has revised up its 2026 and 2027 primary aluminum output forecasts for China to 45.6 million tonnes and 46.3 million tonnes, respectively. Strong industry profits are fueling restarts, replacement projects, and overproduction beyond nominal capacity limits. Data show that China’s operating capacity has exceeded the official 45-million-tonne ceiling, likely due to unauthorized overproduction, continued operation of older capacity under replacement plans, and short-term electrolyzer upgrades. Despite environmental inspections, actual output remains largely unaffected, allowing China to partially offset Middle Eastern supply losses alongside Indonesia.

Analysis framework

Goldman Sachs employs a supply-and-demand balance-sheet approach, disaggregating supply changes and demand growth across regions (Middle East, Indonesia, China, Rest of the World) to derive the global aluminum market’s equilibrium and price trajectory. The report emphasizes how shifts in ‘marginal supply’ influence pricing: in the short term, the marginal reduction in Middle Eastern supply dominates market sentiment and lifts prices; over the medium term, attention shifts to the incremental release of new capacity in Indonesia and China, which will gradually fill and surpass Middle Eastern losses, establishing a prolonged surplus and downward pressure on prices. Additionally, the report draws on historical analogies—such as the recovery timeline following the 2025 Iberian grid outage—to calibrate the pace of Middle Eastern capacity restoration and uses high-frequency data like industry profit margins and inventory days to validate the sustainability of supply growth.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Balance Analysis

  By comparing regional aluminum supply (production + net imports) with consumption across the globe, the framework calculates market surpluses or deficits to infer price direction. The core logic of this report hinges on the interplay between declining Middle Eastern supply and rising output from China and Indonesia.

• Industry/Industrial Analysis Framework

  Capacity Recovery Timeline Calibration

  Drawing on historical precedents—such as grid failures leading to production halts—the report estimates the time required for currently damaged Middle Eastern capacity to fully recover, enabling more accurate projections of future supply curves.

• Company Fundamentals & Financial Framework

  Profit Margins Driving Supply Elasticity

  Analyzing how smelter profit levels incentivize production behavior. High margins prompt firms to accelerate new capacity deployment, keep old plants running, and even produce above planned levels—key micro-level factors in assessing the sustainability of supply growth.

Key data

• 2026 Q3 Aluminum Price Forecast$3,300/tonneRaised by $100/tonne from the previous forecast
• 2027 Average Aluminum Price Forecast$2,950/tonneRaised by $200/tonne from the previous forecast
• 2026 Global Aluminum Market Balance-720,000 tonnesExpanded from a previously projected 570,000-tonne deficit
• 2027 Global Aluminum Market Balance+590,000 tonnesDrastically narrowed from a previously projected 1.3-million-tonne surplus
• 2027 Indonesia Primary Aluminum Production Forecast2.9 million tonnesRaised by 400,000 tonnes from the prior estimate
• 2027 China Primary Aluminum Production Forecast46.3 million tonnesRaised by 400,000 tonnes from the previous projection

Impact & implications

For aluminum prices, in the short term (second half of 2026), constrained supply and a market deficit will keep prices elevated, with Goldman Sachs forecasting an average of $3,300/tonne in Q3. However, over the medium term (2027 and beyond), as Indonesia and China continue to ramp up output, the market will revert to surplus, pulling prices lower, with the 2027 average expected to fall to $2,950/tonne—below the forward curve. From a trading perspective, we recommend closing out December 2026 aluminum short positions (as rising near-term prices could lead to losses) and establishing short positions on December 2027 aluminum futures to better capture the medium-term structural surplus. At the same time, maintain the “long copper, short aluminum” pairing, with any remaining upside potential concentrated on the aluminum short side.

Risks

• Prolonged Middle Eastern conflict or slower-than-expected capacity recovery could keep aluminum prices elevated for longer, delaying the onset of market surplus.
• If Middle Eastern capacity recovers faster than anticipated, the 2027 supply surplus could balloon to 1.2 million tonnes, pushing prices down toward $2,750/tonne.

What to watch

• The pace of capacity restoration at aluminum smelters in the Middle East (particularly in Bahrain and the UAE)
• The commissioning speed of new aluminum projects in Indonesia and the stability of their power supply
• Whether China’s primary aluminum output continues to exceed the 45-million-tonne capacity ceiling and the impact of environmental policies on actual production
• Changes in global aluminum inventories, especially those held by the LME and the Shanghai Futures Exchange