Aluminum prices are facing significant downward pressure in the short term, as a triple threat of supply-side headwinds converges. While supply disruptions from the Middle East conflict had provided strong support, pressure from China's unexpectedly robust production expansion, Indonesia's rapidly ramping smelting capacity, and the potential release of Middle Eastern inventories is notably cooling bullish sentiment.
According to a June 12th Global Metals Weekly report, official data shows April's annualized aluminum production reached a high of 47.6 million tonnes. If this production rate continues, the global aluminum market could shift from a projected minor deficit to a surplus. Concurrently, Indonesian smelters are expected to add approximately 2 million tonnes of supply this year, and a potential easing of tensions in the Strait of Hormuz could see a backlog of 500,000 to 1 million tonnes of inventory from the Middle East flood the market.
The combination of these three pressures is causing both funds and physical buyers to adopt a wait-and-see stance. Analysts note that while fundamentals outside China remain tight and long-term energy security investments are expected to boost metal demand, short-term price vulnerability cannot be ignored, even as a price target of $4,000 per tonne is maintained.
Discrepancy in Chinese Data Fuels Surplus Risk
The true level of Chinese aluminum production is one of the market's greatest current uncertainties. According to the report, the International Aluminium Institute estimates China's April production at an annualized rate of about 44.7 million tonnes, while a Chinese industry website estimates 46 million tonnes, and official government data shows a much higher 47.6 million tonnes—a gap of nearly 3 million tonnes between the estimates.
Using 46 million tonnes as a baseline assumption in its supply-demand model leads to a forecast of a modest global deficit of about 153,000 tonnes for 2026. However, if the official data proves accurate, the global market would tip into surplus.
From a trade flow perspective, the premium of LME aluminum prices over Shanghai Futures Exchange prices has made importing primary aluminum into China uneconomical, while making exports of semi-finished products increasingly attractive. Data shows China's exports of semi-finished aluminum are nearing levels seen before the government removed export tax rebates, a trend warranting close attention.
Indonesian Capacity Ramp-Up Adds Supply Pressure
Indonesia is emerging as a significant new force in the global aluminum supply landscape. The country's aluminum output is projected to exceed 2.2 million tonnes this year, a sharp increase from just about 600,000 tonnes in 2025. Multiple smelting projects are in the ramp-up phase.
Export data confirms this trend. Indonesia's exports of unwrought, non-alloyed aluminum reached multi-year highs in the first quarter of 2026, though the full scale of exports has yet to be unleashed as capacity continues to climb. As Indonesian smelters improve operational efficiency, their rising exports will exert incremental supply pressure on the global market.
Potential Middle East Inventory Release Caps Upside
Since the outbreak of conflict, the blockade of the Strait of Hormuz has led to a significant accumulation of aluminum inventory in the Middle East. A normalization of the situation and logistics could see a concentrated release of this stockpile, posing a clear downside risk to prices.
This potential release is estimated between 500,000 and 1 million tonnes. This volume could partially offset the supply gap created by reduced Middle Eastern smelting capacity—annualized production in the region plummeted 34.7% year-on-year in April, with facilities in the UAE, Bahrain, Qatar, and Iran impacted.
The report also notes that LME aluminum inventories have continued to decline, with about 25% of stocks cancelled for physical withdrawal, indicating ongoing demand and maintaining a deep cash premium in the futures curve. However, potential incremental supply from China, Indonesia, and the Middle East is expected to gradually alleviate this market dislocation.
Tight Fundamentals Outside China Keep Buyer Costs Elevated
Despite the gathering supply-side headwinds, the aluminum market outside China remains fundamentally tight, with U.S. and European buyers facing high procurement costs. The Middle East accounts for roughly 20% of aluminum imports for both the U.S. and Europe. Smelter outages and the Strait blockade have caused spot premiums in both regions to surge significantly.
Notably, European consumers are actively competing with their U.S. counterparts for metal, pushing European premiums above U.S. levels. This means U.S. buyers not only face a government tariff but also an additional premium pressure from European bidding. Furthermore, the outage at a major smelter in South Africa has tightened the European market further. While this tightness provides some price support, uncertainty surrounding the conflict has kept fund and physical buyer positioning largely unchanged since its onset, fostering a cautious market mood.
Long-Term Uptrend Intact with $4,000/tonne Target
The short-term headwinds have not altered the medium-to-long term bullish outlook. The base case forecast anticipates a modest global deficit of about 153,000 tonnes in 2026, widening to approximately 1.503 million tonnes in 2027. Consequently, an average price forecast of $3,600 per tonne for 2026 and $4,313 for 2027 is maintained, with $4,000 per tonne seen as an achievable target.
The core logic supporting this view is threefold: the impact of Middle Eastern supply disruptions is expected to be prolonged; China has set a production capacity cap, limiting unchecked domestic expansion; and accelerating global investment in energy security is projected to significantly boost demand for aluminum and other metals over the medium to long term.
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