Key Moments
- Aluminum prices have rebounded as Chinese and LME inventories decline sharply and Gulf smelter outages continue.
- The Australian Ministry expects the primary aluminum market to be significantly undersupplied this year and next.
- Non-Chinese capacity, especially in Indonesia, is projected to rise strongly over the longer term, reshaping supply dynamics.
Short-Term Market Tightness Supports Prices
According to Commerzbank strategist Barbara Lambrecht, the recent pullback in aluminum prices appears to have ended, with the market firming again as inventories in China and on the London Metal Exchange (LME) decline and production disruptions in the Gulf region persist.
Lambrecht notes that visible stocks have been drawn down substantially, reinforcing price support in the near term as supply tightens relative to demand.
Inventory Trends and Gulf Outages
Ongoing reductions in inventories and outages at smelters in the Gulf region are highlighted as key drivers of the current market environment.
“Stocks could fall below 900 Tsd. tons this month. Aluminium stocks registered on the LME have also been falling significantly since the end of October and have dropped below 300 Tsd. tons for the first time since October 2022.”
“Also, in its latest market outlook, the Australian Department of Resources and Energy considers price levels in the market to be well supported. Whilst China has partially offset production losses in the Gulf region, longer-term outages are expected due to damage to the region’s aluminium smelters.”
“For example, the Al Taweelah smelter in the United Arab Emirates, with a capacity of 1.6 million tons per year, is likely to be out of operation for 12 months, although the operator announced yesterday that it is working on a faster timeline. The Australian Ministry therefore expects the market for primary aluminium to be significantly undersupplied this year and next.”
Near-Term Balance: Significant Undersupply Expected
The assessment from the Australian Ministry, as cited, underlines a pronounced shortfall in primary aluminum supply over the current and following year. While some lost output in the Gulf has been partially compensated by China, the damage to regional smelters is expected to keep a meaningful portion of capacity offline for an extended period.
| Key Market Indicators | Detail |
|---|---|
| Chinese & global stocks | Sharp declines, with total stocks potentially below 900 Tsd. tons this month |
| LME-registered stocks | Fell below 300 Tsd. tons, the lowest level since October 2022 |
| Al Taweelah smelter (UAE) | Capacity of 1.6 million tons per year, likely out of operation for 12 months, with work on a faster restart timeline |
| Market balance (primary aluminum) | Expected by the Australian Ministry to be significantly undersupplied this year and next |
Long-Term Outlook: Expanding Capacity Outside China
Looking further ahead, the Australian Ministry is described as more cautious about the structural outlook, even as fundamentals on the demand side remain supportive. Demand is seen as underpinned by the shift toward renewable energy, ongoing electrification, and the trend in the automotive sector toward using aluminum in place of higher-cost copper.
“In the longer term, however, the Ministry is more pessimistic: whilst demand would remain well supported by the transition to renewable energy and electrification, and there is also a trend towards replacing the more expensive copper with aluminium in the automotive sector, supply – outside China – would also rise sharply: Capacity is growing rapidly, particularly in Indonesia, thanks to increased investment by Chinese investors.”
“Capacity is set to expand from 1.3 million tonnes today to 5.3 million tonnes by 2031. At first glance, this is similar to recent developments in the nickel industry, but the scale is different: China retains its dominant market position.”
Implications for Investors
The combination of immediate supply constraints and a projected ramp-up in non-Chinese capacity outlines a two-stage market narrative: a tight, price-supportive environment in the near term, followed by potential easing of structural tightness as new projects, particularly in Indonesia, come online while China maintains its dominant role in the market.
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