Goldman Sachs: Middle East conflict sparks aluminum market shortage this year, but significant surplus will emerge next year as supply recovers.

# Xu Chao

Source: Wallstreetcn

Missile strikes in the Middle East have disrupted roughly 4% of global aluminum production capacity. Goldman Sachs has urgently raised its Q2 2026 aluminum price target to $3,450 per tonne. The global aluminum market has abruptly flipped from a projected surplus of 550,000 tonnes to a deficit of 570,000 tonnes — yet this tight window will be short-lived. A massive supply comeback in 2027 will bring a surplus of 1.3 million tonnes, making timing everything.

Military conflict in the Middle East is reshaping the global aluminum market landscape.

According to追风交易台 (Zhuifeng Trading Desk), Goldman Sachs in a March 31 report sharply raised its Q2 2026 LME aluminum price target to $3,450 per tonne, up from a previous $3,200. Its full-year 2026 average price forecast was also lifted from $3,100 to $3,200 per tonne.

Analysts warned that missile and drone attacks targeting two major aluminum hubs in the Middle East have completely reversed the global aluminum supply-demand balance — from an expected surplus of 550,000 tonnes to a deficit of 570,000 tonnes.

However, upside for aluminum prices is limited and has a clear ceiling. Goldman Sachs noted that the shortage will be highly concentrated in Q2 2026, with a deficit of 1.2 million tonnes. As new capacity in Indonesia ramps up in the second half of the year, the market will return to a small surplus of around 190,000 tonnes in Q4. By 2027, a broad supply recovery will push the global aluminum market into a large surplus of 1.3 million tonnes, with average prices falling sharply from $3,200 to $2,750 per tonne. The upward price window is focused in the first half of this year, making precise timing critical.

## Two Middle Eastern aluminum giants hit, accounting for 4% of global capacity

The core shock stems from simultaneous damage to two major aluminum facilities in the region.

Al Taweelah smelter (1.6 million tonnes annual capacity), owned by UAE’s EGA, suffered “severe” damage from missile and drone attacks, according to an official company statement. Alba’s 1.6 million-tonne facility in Bahrain was also struck on Saturday, March 28, with damage assessments still underway.

Combined, the two sites represent 3.2 million tonnes of annual capacity — roughly 4% of global primary aluminum output. With the full extent of damage still unclear, they pose major uncertainty on the supply side.

Goldman Sachs pointed out that even before the attacks, Alba had voluntarily shut down Lines 1–3 for controlled maintenance on March 14, accounting for 19% of its total capacity. The military strikes have further heightened market concerns over the outlook for Middle Eastern aluminum supplies.

## Supply shock outweighs demand weakness; price targets raised across the board

Against this backdrop, Goldman Sachs has fundamentally revised its 2026 aluminum market outlook.

Specifically, the bank slashed its 2026 UAE aluminum production forecast from 2.7 million tonnes to 1.95 million tonnes, and Bahrain’s output from 1.5 million to 1.1 million tonnes.

Analysts emphasized that the negative impact of supply disruptions has outweighed demand headwinds from slowing global GDP growth, resulting in a net tightening of the aluminum market.

On pricing, Goldman Sachs raised its 2026 full-year LME aluminum average forecast from $3,100 to $3,200 per tonne, and its Q2 target from $3,200 to $3,450 per tonne — broadly in line with current futures levels.

## Shortage peaks in Q2, eases in H2 as Indonesian capacity comes online

In terms of timing, the aluminum market deficit will be most acute in Q2 2026.

Goldman Sachs projects a global deficit of 1.2 million tonnes in the second quarter, accounting for the bulk of the full-year 570,000-tonne shortfall.

Pressure should ease marginally in the second half. As new Indonesian capacity gradually ramps up, the global aluminum market is expected to return to a small surplus of about 190,000 tonnes in Q4 2026. This seasonal shift means the strongest upward momentum for aluminum prices will be concentrated in the first half, with downward pressure building as supply recovers in H2.

## Downside scenario: Average prices could hit $3,400, surpassing Europe energy crisis peak

Goldman Sachs also ran stress tests under an extreme scenario.

If combined 2026 output from Bahrain, the UAE, Qatar and Iran falls by 50% (compared with around 30% in the base case), global inventories would drop to critically low levels. Even with weaker demand from lower economic growth, average aluminum prices could still reach $3,400 per tonne for the year.

This would be $700 per tonne above the 2022 average during Europe’s energy crisis, marking an all-time high.

The bank identified key upside risks: worse-than-assumed damage to affected facilities, further military strikes shutting down more capacity, and passive production halts from disruptions to raw material or natural gas supplies.

## 2027 supply surge to swing market into 1.3-million-tonne surplus

Although Goldman Sachs slightly raised its 2027 average aluminum price forecast to $2,750 per tonne from $2,700, its overall view for next year is cautious.

Analysts clearly expect the global aluminum market to swing to a large surplus of 1.3 million tonnes in 2027, with a Q4 2027 price forecast of just $2,600 per tonne. At that point, smelter margins and inventory coverage days will realign to more sustainable levels.

The pace of supply recovery is largely set.

Goldman Sachs noted that restarting cold-idle capacity takes at least six months, and repairing damaged facilities will likely take even longer.

Nevertheless, as new capacity in Indonesia and elsewhere continues to ramp up, the market will quickly shift from deficit to large surplus in 2027. From 2028 onward, the bank’s balanced and price forecasts remain unchanged: low-cost new supply will keep the market in persistent surplus, weighing on the long-term price floor. For aluminum-related investments, accurately timing the supply-demand rotation will be the decisive factor for performance.

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