Aluminium deficit persists despite easing Middle East tensions
The desk interprets ongoing aluminium market dynamics as a persistent deficit, underscored by geopolitical improvements but hindered by enduring supply constraints. Per the full note from ING Think, even with reduced tensions in the Middle East, the broader supply picture remains strained, anticipating a global aluminium deficit of 1.8 million tonnes this year. This contrasts with a market that has experienced a significant production loss of approximately 3 million tonnes due to earlier geopolitical unrest. The consensus around aluminium's value trajectory may become increasingly critical as the market grapples with these disparities amidst a lack of immediate economic indicators on the calendar.
What the desk is arguing
The desk posits that while geopolitical tensions have dissipated, the aluminium market continues to face a significant supply shortfall. The easing of concerns regarding the Middle East has not substantially altered the fundamental supply situation, with the ongoing forecast pointing to a deficit of 1.8 million tonnes this year according to the insights from ING Think.
Despite improved geopolitical conditions, the impact of previously lost aluminium production remains evident. Historical outputs reflect that about 3 million tonnes have been sidelined owing to conflicts, indicating a long recovery ahead for smelters that cannot quickly restore operations. Hence, the aluminium market remains fundamentally tight even as uncertainties lessen in related geopolitical contexts.
Where it sits in our coverage
Our current consensus target for aluminium sits at 1.075, with a range spanning from 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This desk's view aligns closely with jpmorgan, placing it towards the upper bound of the target range, diverging more significantly from bofa, suggesting a more conservative outlook.
How other firms see it
Aligned views from firms such as jpmorgan suggest a similar optimistic outlook regarding aluminium, while firms like bofa offer a more cautious perspective on its price recovery. This juxtaposition reflects differing approaches to current supply deficit assessments.
Price trajectories within commodities markets should be monitored closely, specifically with respect to energy flows and materials like copper, as they interconnect with aluminium's performance in global markets.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The aluminium market is in a supply deficit of 1.8 million tonnes for 2023.
- 02Middle Eastern geopolitical improvements have not resolved supply chain issues.
- 03Recovery of aluminium production from smelters is expected to be slow.
- 04Differing firm perspectives highlight inherent market uncertainty.
Market implications
Watch for aluminium prices around the consensus target of 1.075; any confirmation of supply recovery or renewed geopolitical threats could shift this dynamic significantly. The landscape is especially sensitive to shifts in energy prices that impact production costs.
Risks to this view
A re-escalation of tensions in the Middle East or a sudden disruption in global shipping could invalidate this bullish outlook. Additionally, if smelters manage a quicker-than-expected recovery, it could flood the market and change the supply-demand balance.
Articles Aluminium deficit persists despite easing Middle East tensions 15:26 Commodities, Food & Agri Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Geopolitical tensions have eased, reducing upside risks for aluminium prices, but market balances remain tight and the deficit persists Ewa Manthey We continue to see supportive fundamentals for aluminium De-escalation eases risks, not fundamentals The signing of a preliminary Memorandum of Understanding (MoU) between the US and Iran last week, alongside the extension of the ceasefire, has eased concerns over further disruptions to aluminium supply and key shipping routes in the Middle East. However, while the agreement lowers the risk of additional supply losses, it does not materially change our outlook for the aluminium market. We continue to expect the global aluminium market to remain in deficit this year.
Supply disruptions linked to the conflict have already removed an estimated 3 million tonnes of production from the market. As a result, we continue to forecast a global aluminium deficit of 1.8 million tonnes this year. While the geopolitical backdrop has improved, the supply losses underpinning this outlook have not disappeared.
The Middle East accounts for approximately 9% of global primary aluminium production and remains a key supplier to international markets. Earlier concerns centred not only on potential production losses but also on the risk of disruptions to shipping through the Strait of Hormuz, a critical route for both metals and energy flows. The ceasefire extension has eased these concerns and reduced the likelihood of a broader regional escalation.
Lost supply won’t return overnight However, aluminium supply cannot be restored overnight. Smelters are designed to operate continuously, and restarting idled capacity can take months and require significant investment. This means that even if geopolitical conditions continue to improve, supply recovery is likely to be gradual.
The ceasefire reduces the risk of further disruptions, but it does not immediately restore lost production. China steps in, but can’t fill the gap Higher Chinese exports have provided some relief to the market. Export volumes rose 15% year-on-year in April to 598kt and increased a further 16% year-on-year in May to 630kt, with the China Nonferrous Metals Industry Association (CNIA) suggesting that full-year aluminium product exports could reach a record high in 2026.
China's output hits record high Source: NBS, ING Research "> Source: NBS, ING Research And exports surge Source: China Customs, ING Research "> Source: China Customs, ING Research The increase in exports has been driven by a widening premium between international and Chinese aluminium prices following supply disruptions linked to the Middle East conflict. Higher prices outside China have encouraged producers to maximise exports, while weaker domestic demand and elevated inventories have also supported additional overseas shipments. China has also increased alumina exports, with May shipments rising 36.4% year-on-year to 280kt.
The increase in alumina availability has helped alleviate some concerns over raw material supply and provided additional support to global aluminium supply chains. China’s ability to further increase supply also appears limited. Annualised production is already running at around 46.7 million tonnes, above the government's 45 million tonnes capacity cap.
While higher export volumes have helped alleviate some of the tightness in global markets, there appears to be limited scope for a significant increase in Chinese output, leaving the global market dependent on a gradual recovery in disrupted supply elsewhere. Additional supply growth from Indonesia is also unlikely to materially alter market balances in the near term. While new projects are expected to increase capacity, the estimated incremental supply additions of around 0.5-0.8 million tonnes this year, subject to downside risk from power and permitting constraints, are well below the estimated 3 million tonnes of production lost as a result of the Middle East conflict.
As a result, the market is likely to remain in deficit despite rising output from Indonesia. Aluminium remains supported For prices, the ceasefire is likely to have a greater impact on risk sentiment than on fundamentals. During the height of the conflict, aluminium prices incorporated a geopolitical premium reflecting the possibility of further supply disruptions and shipping bottlenecks.
With the ceasefire now extended and the US-Iran MoU providing a framework for further negotiations, part of this premium is likely to unwind. However, we believe downside risks for aluminium prices remain limited. The market continues to face a supply deficit of 1.8 million tonnes, while inventories continue to signal tight physical market conditions.
LME aluminium stocks have fallen to around 314kt, down almost 40% from the start of the year despite stronger Chinese exports and the easing in geopolitical tensions. LME inventories continue to draw Source: LME, ING Research "> Source: LME, ING Research The improvement in the geopolitical backdrop reduces the risk of further supply disruptions, but it does not immediately restore lost production. While higher Chinese exports have helped alleviate some of the tightness in global markets, they have not been sufficient to eliminate the deficit.
As a result, we continue to see supportive fundamentals for aluminium despite the recent de-escalation. We maintain our aluminium price forecasts of $3,500/t in 3Q and $3,400/t in 4Q. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.
The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Ewa Manthey Commodities Strategist Ewa Manthey is a Commodities Strategist based in London. She joined the bank in September 2022 and covers the entire commodities complex, with a particular focus on the metals markets.
She has… In this article De-escalation eases risks, not fundamentals Lost supply won’t return overnight China steps in, but can’t fill the gap Aluminium remains supported
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