ING Sees Aluminium Supply Tightness, Limited Price Downside

Key Moments

Market Tightens as Supply Shock Deepens

The aluminium market has shifted into what ING Economics describes as a “structural deficit,” as ongoing disruptions at smelters in the Gulf region evolve from a logistics issue into a full-fledged supply crisis. ING’s analysis indicates limited prospects for a rapid normalization, with risks tilted toward further price strength.

According to the report, the recent escalation in the Middle East has turned a shipping and logistics challenge into a substantive reduction in global aluminium output, with several Gulf smelters now operating well below normal capacity. This has pushed the market into a pronounced deficit, with little immediate relief in sight.

Gulf Smelter Curtailments Intensify

Operations at Emirates Global Aluminium’s Al Taweelah facility have been suspended, while Aluminium Bahrain (Alba) and Qatalum are running at reduced rates. Alba in particular has experienced a sharp decline in output.

Although the Middle East accounts for roughly 9% of worldwide aluminium production, the region’s role in seaborne exports is considerably larger, the ING report noted. As a result, any regional disruption has an outsized impact on global availability and pricing.

In mid-March, ING Economics estimated that about 560,000 tons of annual capacity was affected – approximately 300,000 ton at Alba and 260,000 ton at Qatalum. Since then, curtailments have deepened. With Alba operating at around 30% of capacity and Qatalum at about 60%, ING now believes that roughly 3 million tons of capacity are impacted. This amounts to nearly half of the region’s total aluminium production.

“Based on current operating rates, the aluminium market would be in a deficit of close to 2.9Mt if disruptions persisted through the remainder of the year,” Ewa Manthey, commodities strategist at ING said in the analysis.

ING expects some offsetting forces to emerge as elevated prices weigh on consumption and trigger adjustments across the supply chain. The bank anticipates demand destruction, destocking, and a partial response from Chinese producers to mitigate part of the shortfall, resulting in a base case deficit of around 2Mt.

Price Rally Fueled by Physical Tightness Concerns

ING’s energy market view suggests that disruption is likely to peak early in the year and then gradually ease. Even so, the firm argues that continued supply constraints will keep prices supported, while additional gains should be capped by weaker demand, inventory drawdowns, and increased Chinese output.

“As a result, aluminium prices remain elevated but do not extend materially higher from current levels,” Manthey added.

Aluminium has notably diverged from broader base metals performance. While most metal prices have declined, aluminium has climbed sharply, rising about 13% since the end of February to above $3,600 per ton. This is the highest level since late March 2022, shortly after the start of the conflict in Ukraine.

The spot market has tightened markedly. Earlier this week, the spot price of aluminium traded nearly $90 above the 3-month forward contract, signaling intense concern about near-term availability. Barbara Lambrecht, commodity analyst at Commerzbank AG, highlighted this in a recent report, stating that the price structure shows the market is being driven by fears of an imminent physical shortage. The premium has reached its highest point since March 2007.

“Furthermore, the futures curve on the aluminium market, which was already in backwardation prior to the war in Ukraine, is now falling even more sharply,” Lambrecht said.

The nearest futures contract is now trading almost 10% above the contract maturing in a year, compared with a spread that was only about half that size one month earlier.

Upside Scenarios Point Toward $4,000 per Ton

The risk profile for aluminium prices remains skewed to the upside, according to ING. Persistent or intensifying supply chain stress would slow the pace of market normalization and could lead to further capacity reductions, particularly as alumina supply constraints and logistical bottlenecks worsen.

In such a scenario, Manthey indicated that aluminium prices could surpass $4,000 per ton. However, she also noted that the resulting demand destruction at such levels would likely trigger a price retreat later in the year, even if the underlying market balance remains structurally tight.

Commerzbank’s analysis also points to the potential for a move toward $4,000 per ton under certain disruption scenarios. The bank’s calculations show that aluminium prices could approach the $4,000 threshold if the Strait of Hormuz remained closed till May.

“However, the price would still remain below the record high of USD 4,073 set in March 2022,” the German bank said.

Structural Tightness With Limited Downside

ING’s base case incorporates some recovery in supply conditions, but the bank still expects the aluminium balance to stay tight, with constrained downside and clearly identifiable upside risk if current disruptions prove more prolonged or severe than anticipated.

While some recovery is expected in our base case, the balance remains tight, with limited downside and clear upside risks under prolonged or severe disruption scenarios.