[Summary of Opinions] Aluminum: Supply certainty gap, can demand keep up?

(Source: Commodity Intelligence)

Highlights of this issue: How much further can strong supply disruptions affect expectations? With high inventories as the reality, the divergence between overseas higher premiums and weak domestic demand remains.

Four main analyses of how the escalation of geopolitical conflicts in the Middle East is impacting the global aluminum supply chain.

1. In the context where global electrolytic aluminum is already in a shortage pattern, any substantial production cut in the Middle East will further tighten the supply-demand balance. This gives aluminum prices very strong downside resistance.

If the blockade of the Strait of Hormuz continues to escalate, or if the magnitude of production cuts in the Middle East exceeds expectations, aluminum prices may challenge the previous highs.

Overseas market LME inventories are at historical lows. Meanwhile in China, as the “Gold March and Silver April” consumption peak season approaches, inventories are expected to enter a decline cycle starting in April. March 30, 2026

From March 28 to 29, the smelting facilities of the two major Middle Eastern aluminum giants—Emirates Global Aluminium (EGA) and Bahrain Aluminum (Alba)—were attacked, causing “significant damage” to their production facilities. This physical damage constitutes “hard capacity damage,” which may lead to related electrolytic aluminum capacity being interrupted for as long as 6-12 months. In extreme cases, the affected capacity could reach 2.8 million tons/year, about 3.5% of global capacity.

Since the escalation of the US-Iran conflict at the end of February, the Strait of Hormuz—an important sea transport corridor—has been blocked for nearly one month. This has prevented Middle Eastern aluminum plants from importing raw materials such as alumina needed for production, while the produced primary aluminum also cannot be exported, creating a double bind of “raw materials cannot come in, finished products cannot go out.” Raw material inventories at aluminum plants in the region are expected to last only another 1 to 2 weeks.

This attack event upgrades market concerns about aluminum supply—from the risk expectation that “a strait blockade may cause a supply disruption” to the now realized risk of “capacity has been materially damaged.”

If the attack results in large-scale shutdowns, the global electrolytic aluminum supply-demand gap in 2026 is expected to further expand to the 1.5-2.0 million ton range.

2. Due to Guinea’s relatively mild bauxite policy and its own high inventories, alumina is expected to maintain wide-range price fluctuations. Electrolytic aluminum gains key support because Middle Eastern capacity has been damaged. Aluminum alloys also receive some support as supply recovery is slow and inventories decline. March 31, 2026

Tensions in the Middle East have escalated: Iran refuses the US ceasefire proposal, and the US strengthens its military deployments in the Persian Gulf. This pushes up oil prices and suppresses market expectations for a Fed rate cut, putting pressure on industrial metals overall.

Domestic profits of industrial enterprises above designated size increased by 15.2% year-on-year in January-February, indicating the industrial economy is on a steady recovery track and providing some support for industrial metals.

Domestic bauxite production is constrained by environmental protection and safety-related factors, and there is a bottleneck in capacity release. Import volumes of ores are high, causing port inventories to accumulate. The export-restriction policy signals for bauxite from Guinea are considered relatively mild, with limited impact on the raw-material end.

Tightening profits in alumina production lead to output declines, but inventories are high, and the supply-demand structure remains oversupplied. Prices are expected to stay in a wide-ranging fluctuation within the bottom range.

On the demand side of electrolytic aluminum, downstream demand is picking up, and the turning point in social inventories is approaching. On the supply side, geopolitical risks threaten global supply stability. The key event is that Bahrain Aluminum and Emirates Global Aluminium suffered capacity damage due to sudden incidents, which has raised market concerns about supply and provides downside support for electrolytic aluminum prices. Qatar Aluminum has terminated its capacity reduction plan, bringing some stability.

Domestic shipments of scrap aluminum decline seasonally but remain at a high level; imports slow down due to compressed profit margins. In the long run, global trade protectionist policies may trend toward reducing China’s scrap aluminum import volumes.

Although aluminum alloys are in the traditional peak season, downstream recovery is weaker than expected. New orders for enterprises are soft, making it difficult to raise operating rates. Continuous destocking provides downside support for prices, and the market is waiting for substantive improvements in demand.

3. The real trading opportunity depends on whether high domestic inventories can be digested smoothly—namely demand strength—and whether the price ratio between domestic and overseas markets can be restored. Rational entry timing may require waiting for prices to pull back to the level where they start to rebound and receive support. March 30, 2026

At the end of March, attacks spread to key aluminum plants in the UAE and Bahrain, causing around 2.8 million tons of electrolytic aluminum capacity—3.5% of global supply—to shut down in the Middle East region. This triggered panic in overseas markets, with LME aluminum prices surging by nearly 6%, and spot premiums hitting new highs.

Severe divergence between domestic and overseas markets: overseas, supply fears emerge due to geopolitical factors, with prices and premiums soaring. In China, social inventories of electrolytic aluminum are as high as 1.37 million tons, at a high level. Downstream has low acceptance of high prices, so spot premiums remain at a discount, causing a split between domestic and overseas prices.

Long-term changes in supply-demand structure come with extremely small supply elasticity. Domestic electrolytic aluminum capacity faces a “ceiling” of 45 million tons; with limited new capacity additions in 2026, growth sharply slows down.

Demand is “swapping its bloodstream.” The share of aluminum used in real estate—traditionally the largest demand engine—continues to decline, and demand for aluminum in the photovoltaic industry is also expected to decrease. New demand growth is shifting toward new energy vehicles and ultra-high-voltage power grid investment, bringing the industry into a “tight balance” state.

4. Overseas, due to actual substantial production cuts, the supply-tight pattern is expected to persist. Domestically, the market faces high inventory pressure, but the export end performs strongly, forming support. In the future, if the price gap between domestic and overseas markets remains and aluminum prices continue to consolidate, domestic inventories are expected to shift toward destocking, which would provide greater upside elasticity for aluminum prices. March 26, 2026

In the early stage of the escalation of the Middle East situation in mid-March, the aluminum price trading logic focused on the risk of natural gas supply disruptions and the transportation blockage through the Strait of Hormuz affecting Middle Eastern aluminum supply. As the situation continued, market concerns shifted toward runaway inflation and economic weakness, pressuring the non-ferrous metals sector, and aluminum prices subsequently fell.

Overseas supply tightened substantially, and the Middle East situation caused real disruptions to the production and transportation of overseas electrolytic aluminum. Qatar Aluminum reduced output by about 25.9 thousand tons/year due to natural gas supply issues; Bahrain Aluminum reduced load to secure raw-material supply, affecting capacity by about 31 thousand tons/year. The Mozambican South32 aluminum smelter entered planned maintenance, impacting capacity by 58 thousand tons/year.

Taken together, these factors affect about 1.15 million tons/year of overseas capacity, roughly 1.5% of global capacity. This is expected to turn overseas electrolytic aluminum output from growth to decline. China’s operating electrolytic aluminum capacity has already neared the policy ceiling, and global supply will enter a phase of slow growth.

Supply disruptions directly translate into tightness in the physical market. Since March, spot premiums for European aluminum ingots have risen sharply. The LME aluminum spot premium versus three-month futures has also strengthened to near multi-year highs. The US aluminum ingot spot premium has remained at historical highs; import volumes have already recovered to pre-tariff-addition levels, which will continue to support overseas consumption and drive inventory destocking.

The domestic market shows characteristics of “weak domestic demand and strong exports.” On the domestic demand side, as aluminum prices remain high, downstream demand is weaker than expected, and social inventories of electrolytic aluminum have accumulated significantly. Although downstream has basically resumed work, and the proportion of aluminum liquid has returned to normal, terminal real estate and automobile data remain weak, photovoltaic growth is also not obvious, and overall demand elasticity is average.

Export performance is very strong. From January to February, the cumulative export volume of non-forged aluminum and aluminum products (including aluminum materials) increased by 12.9% year-on-year. After the Middle East situation unfolded, overseas aluminum prices were significantly stronger than domestic prices, further incentivizing aluminum material exports.

Two special reports emphasize that supply contraction is significant.

5. The Middle East conflict has entered its fourth week, leading to a profound shift in the market’s pricing logic. Although aluminum’s supply chain has been directly impacted, supporting the commodity attribute for the upside, concerns about global demand slowdown and the pressure from the high interest-rate environment—factors that hurt the financial attribute—temporarily took the upper hand. Aluminum price declines are driven more by capital outflows caused by macro risk-hedging sentiment, rather than the market turning bearish on its fundamentals. March 24, 2026

Review of the aluminum price trend: a roller-coaster ride with ups and downs.

A synchronized rally period: from late December 2025 to late January 2026. Aluminum prices rose from around 22,500 yuan/ton to a peak of 26,185 yuan/ton. The drivers were the convergence of (1) Fed rate-cut expectations, (2) strategic resource repricing under supply-chain threats, and (3) the long-term narrative of strong supply constraints.

A pullback and consolidation period: from late January to early February. Due to macro sentiment volatility triggered by events such as Trump nominating a new candidate for Fed chair, aluminum prices corrected and traded in a range of 23,000-24,000 yuan/ton. After the conflict: an initial surge followed by a pullback. After the Middle East conflict broke out, aluminum prices strengthened temporarily due to supply concerns. But as oil prices surged and sparked stronger inflation and rate worries, macro panic sentiment spread; aluminum prices gave back the gains and fell again, probing down to around 23,000 yuan/ton.

A solid bottom support has already occurred and is continuing: a persistent “hard supply gap.”

Supply risk has shifted from “potential” to “real.” Production cuts have been confirmed for Qatar and Bahrain due to unstable power supply and blocked alumina imports for raw materials, with a combined electrolytic aluminum capacity shutdown of 550 thousand tons/year. The Middle East’s share of global electrolytic aluminum production is high, so the impact is significant.

After electrolytic aluminum capacity is shut down, the restart cycle is long, and even if alternative transport solutions are sought, both time and costs are high. Therefore, the supply gap that has already formed is persistent.

Key transportation chokepoint: the passage conditions through the Strait of Hormuz remain an uncertainty focus, directly affecting the in-and-out movement of both raw materials and products.

The conflict has threatened energy infrastructure. Qatar’s key LNG production line was hit, which may cause some natural gas supply contracts to face force majeure for as long as five years. This directly threatens the cost and stability of electrolytic aluminum production that depends on natural gas power generation.

The gap is difficult to fully make up. Elsewhere, such as Indonesia, new capacity additions are slow to come online due to supporting issues; in 2026, overseas new capacity cannot effectively compensate for this gap.

Supply tightness has already shown up in the physical market. Since March, spot premiums for aluminum in Europe and Japan and the US have continued to rise sharply. Europe’s not-yet-tax-paid aluminum ingot spot premium reached 375 US dollars/ton in mid-March, up 27.2% from late February. This provides the most direct real-world support for aluminum prices.

Demand resilience: long-term narratives under pressure, but reality has not collapsed

Demand is showing divergence between “long-term expectations and short-term reality.” The long-term narrative is under pressure: macro recession concerns and reversed rate-cut expectations weaken the long-term optimistic story of “AI-driven demand.” The logic that energy transition serves as the aluminum demand “backstop safety cushion” remains firm.

In reality, demand has resilience. The market is currently in the traditional peak consumption season, and operating rates of domestic aluminum processing companies are recovering. More importantly, after prices fall, downstream has been stimulated to replenish inventory. As of March 23, domestic aluminum ingot social inventories have already begun to decline to 1.337 million tons, showing that real demand recognizes the current price levels.

If the situation eases, recovery in market sentiment could drive a rebound in aluminum prices. However, as the supply-risk premium unwinds, upward pressure increases after the rebound, and the trend may follow a “rise first, then fall” pattern.

If the situation worsens, macro recession trading would cause risk assets to decline broadly, and aluminum prices would also fall accordingly. But because there is a solid supply gap as support, the downside would be far smaller than in other commodities that lack fundamental support, showing a clear ability to resist declines.

For the long-term logic, it needs to be reassessed after the Middle East situation becomes clearer. The reality of aluminum’s hard supply gap has not changed. Once macro sentiment stabilizes, aluminum prices will have stronger rebound elasticity.

6. Through scenario analysis, the global electrolytic aluminum market—especially overseas—is facing a major supply shock that could be on the order of up to 1 million tons or more, and may last more than half a year. The most likely outcome is to drive a dramatic divergence scenario of “overseas stronger than domestic, widening futures premiums.”

Overseas markets will tighten sharply: under the upper bound of scenario production impact, the shortage of electrolytic aluminum in overseas markets excluding China would expand rapidly from 560,000 tons to 2.86 million tons. This will provide extremely strong bottom support for LME aluminum prices and spot premiums, making prices more likely to rise than fall. March 31, 2026

External tightness versus internal looseness: a split outcome

Major consumption regions such as Europe and the US will face this supply gap of several million tons directly, making spot procurement extremely difficult.

China produces more than half of global electrolytic aluminum output and has a relatively independent supply-demand relationship. In mid-2026, China’s output is expected to be basically flat, with relatively smaller impact on domestic supply-demand. Market sentiment and price performance will be clearly weaker than overseas.

The final impact depends on the damage assessment reports officially released by the plants. The length of the repair period—whether it takes a few months or more than a year—will determine whether the supply gap is a short-term shock or a long-term structural gap.

From a logistics crisis to a capacity crisis

The attacks precisely targeted the capacity of two core aluminum assets in the Middle East: Bahrain Aluminum’s Askar plant with 1.6 million tons/year capacity, and EGA’s AlTaweelah plant with 1.5 million tons/year capacity. The latter has been confirmed to have suffered “severe damage to the facilities.”

The tense Middle East situation mainly threatens raw-material logistics through the Strait of Hormuz blockade. This attack directly destroyed the production facilities themselves, upgrading the supply shock from “transport bottleneck” to a dual blow of “capacity destruction + raw material limitations.”

Why are these two plants so critical?

The electrolytic aluminum output of the six Middle Eastern countries accounts for about 9.25% of global production, but in overseas markets outside China, their share is as high as 23.4%. Their products are mainly sold to Europe and the US, serving as key metal supply sources for the Western industrial system.

Bahrain’s Askar plant is the largest single electrolytic aluminum plant outside China, often regarded as an industry cornerstone. Before the attack, it was already vulnerable due to raw-material issues; it shut down production lines 1-3 on March 15, accounting for 19% of capacity. This attack is the icing on the cake.

EGA’s AlTaweelah plant is a comprehensive production base with alumina capacity of 2.45 million tons/year, with alumina self-sufficiency of about 48%. Its damage affects both electrolytic aluminum production and the regional raw-material balance.

Three-scenario projections based on the level of damage

Because electrolytic aluminum production has the characteristics of “continuous operation, high costs, and difficult restart,” three scenarios are set based on the severity of facility damage.

Scenario A: Lower impact on output; auxiliary equipment and downstream-side damage.

This scenario assumes the attack only damaged casting, storage, or supporting equipment, while the core electrolytic cells and rectifier/transformer power supply systems for electrolytic aluminum production remain intact. In this case, smelting production itself can be maintained. The impact is mainly reflected in shipment and downstream processing stages, with more flexibility in logistics and scheduling adjustments. Typical repair timelines are measured in “weeks.”

Under this scenario, global electrolytic aluminum supply in 2026 would decrease by about 112,500 tons. The global market would shift from a slight surplus of 170,000 tons to a small surplus of 50,000 tons. Meanwhile, the overseas market’s shortage would widen from 560,000 tons to 680,000 tons.

Scenario B: Moderate impact; core electrical equipment damaged, but a “controlled shutdown” is achieved.

Assume that core electrical equipment such as power supply, rectifiers, or transformers is damaged, but the plant can execute safety procedures and carry out a “controlled shutdown” for the affected production lines, avoiding the most severe production accidents. This falls under the category of “minor repair.” Normal restart would take 3 to 6 months, but due to current disruptions in global geopolitical trade and extended procurement cycles for key equipment, the actual restart time could extend to 6 to 12 months.

In this scenario, the impact level is between Scenario A and Scenario C.

Scenario C: Upper-bound impact on output; electrolytic cells or the power distribution/rectification system suffers substantial damage or an “emergency stop.”

Assume electrolytic cells or rectification systems are substantially damaged, or a sudden power outage triggers an emergency stop, causing aluminum liquid inside the cells to freeze and the lining to be scrapped. Subsequent restart requires completing relining, equipment commissioning, and ramping up capacity, which falls under the category of a “major overhaul.” The typical restart cycle is no less than 6 months, and may extend to 6-12 months or even longer.

Under this scenario, global electrolytic aluminum supply in 2026 would decrease significantly by 2.3 million tons. The global market would reverse from a slight surplus of 170,000 tons to a shortage of 2.13 million tons. The overseas market shortage would surge from 560,000 tons to 2.86 million tons.

Combining this information that the AlTaweelah complex has been disclosed as suffering “severe damage to facilities,” it is judged that the actual impact is most likely Scenario C or Scenario B, rather than the mildest Scenario A.

A recent weekly report

7. The weekly market characteristics are “rigid supply, demand recovery, and inventory destocking.” Although overseas production cuts provide support, domestic demand is also gradually recovering. However, because the overall inventory level remains high, the upside potential for aluminum prices is limited. Overall, aluminum prices are expected to continue trading with volatility in the short term. Going forward, focus should be on geopolitical risk and changes in macro policies. March 27, 2026

Uncertainty remains in negotiations between Iran and the US; developments are a key factor behind market sentiment fluctuations. The People’s Bank of China injects net liquidity via open market operations, aiming to keep liquidity reasonably and sufficiently abundant.

On the supply side, domestic electrolytic aluminum capacity is operating at nearly full load at about 44.43 million tons. Overseas there are substantial production cuts of about 1.15 million tons/year, leading to a global supply tightening trend.

On the demand side, structural divergence is emerging. Demand in sectors such as photovoltaic, new energy, and ultra-high voltage power grids shows relatively strong resilience, supporting overall consumption. But the recovery in real estate and construction profile-related areas is weaker than expected. The operating rate of processing enterprises in the downstream across the country rose slightly month-over-month to 62.9%.

On the inventory side, it shows the characteristic of “decreasing externally but increasing internally.” LME inventories are decreasing, while domestic social inventories are increasing, keeping overall inventories at historical high levels.

Shanghai aluminum futures open interest has declined. Multiple institutions, including Jinyuan Futures, Hongye Futures, and CITIC Futures, generally believe that under the combined impact of supply disruptions and repeated macro sentiment fluctuations, aluminum prices will maintain a range-bound trend. 23,000 yuan/ton is a key support level that needs attention.

A recent monthly report

8. The core contradiction lies in the game between macro inflation expectations and industrial supply contraction. Despite volatility and pressure from macro uncertainties such as the Middle East situation and Fed policies, the electrolytic aluminum industry has already formed a confirmed supply gap due to overseas production cuts. This provides solid support below aluminum prices. Against the backdrop of seasonal demand recovery, it is expected that the future price center will gradually move upward. March 30, 2026

In March, prices surged and then fell back; the logic switched. In the first half of the month, the upside drive came from concerns about industrial supply. A sudden shift in the Middle East geopolitical situation led to market worries about disruptions in the aluminum supply chain in key production areas. Bahrain, Qatar, and Iran’s aluminum plants collectively had about 64 million tons/year of capacity affected, plus 580,000 tons/year of capacity issues at South Africa aluminum plants. By March, overseas production was already effectively cut by more than 1.2 million tons/year. Expectations of supply contraction strongly supported aluminum prices, which reached historical highs. In the latter half of the month, the drivers for the decline were macro inflation and a stronger US dollar. On March 19, the Fed FOMC meeting released a more hawkish signal, including a higher probability of Powell being retained, and emphasized that controlling inflation is a prerequisite for rate cuts. This caused the market’s trading logic to switch from “industrial supply” to “macro inflation.” The US dollar index strengthened, pressuring non-ferrous metals priced in USD. In addition, high oil prices could trigger fears of liquidity tightening. Funds then withdrew from precious metals and non-ferrous markets, leading aluminum prices to surge and then fall back.

Overseas supply is tense, domestic remains stable. The 1.2 million tons/year and above capacity reductions overseas are a clear bullish support, and in the short term they cannot effectively be replaced by Indonesia’s new capacity, which will only come online in the second half of the year.

Domestic operations are very steady. In March 2026, domestic electrolytic aluminum operating capacity is estimated at 44,401.9 thousand tons, with a capacity utilization rate of 97.48%. New capacities such as projects in Xinjiang and Inner Mongolia are still being advanced toward commissioning. The aluminum liquid ratio has increased slightly, but social inventories of aluminum ingots have still accumulated to around 1.3 million tons, which suppresses prices.

On the demand side, overall demand is weak and the market is waiting for the peak season. Real estate remains the main drag. In January-February 2026, the amount of aluminum used in real estate was only 5.0776 million tons, down 4.632 million tons year-on-year. The decline in residential completion area—especially driven by high aluminum prices and falling completion area, with residential completion area down 26.9% in January-February—is the main reason. The year-on-year decline in March demand may continue to expand. The automotive sector faces short-term pressure, but is expected to rebound. In February 2026, due to the Spring Festival holiday and the shift in new energy vehicle policies, domestic automotive aluminum consumption was only 0.2676 million tons, down 31.76% month-on-month and down 12.27% year-on-year. However, the report expects that after the holiday, with resumption of work and production and inventory replenishment demand, March automotive aluminum consumption will see a seasonal rebound.

Aluminum prices in April are expected to maintain wide-range volatility, but the center of gravity is expected to move slightly higher than the end of March. The direction of prices in the future depends highly on how the Middle East geopolitical situation evolves.

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