Goldman Sachs: Middle East conflict has caused aluminum shortages this year, but after supply returns, a significant surplus is expected next year.

Military conflicts in the Middle East are reshaping the global aluminum market landscape.

According to a report from the Pursuing the Wind Trading Desk, in a March 31 report, Goldman Sachs urgently raised its LME aluminum price target for Q2 2026 to 3,450 USD/ton (from 3,200 USD/ton), and also increased its full-year average price forecast from 3,100 USD/ton to 3,200 USD/ton.

Analysts warn that, due to missile and drone attacks in the Middle East targeting two core aluminum industry facilities, the global aluminum market’s supply-demand balance has been completely reversed—shifting sharply from the previously expected 550,000-ton surplus to a 570,000-ton shortage.

But the upside for aluminum prices is limited and has clear boundaries. Goldman Sachs said that the shortage is highly concentrated in Q2 2026 (the gap reaches 1.2 million tons). As new capacity in Indonesia is released gradually over the second half of the year, the market in Q4 will move into a slight surplus (about 190,000 tons). By 2027, as supply returns in a major way, the global aluminum market will see a large surplus of as much as 1.3 million tons; at that time, the aluminum price average would fall sharply from 3,200 USD/ton to 2,750 USD/ton. The upside window is concentrated in the first half of this year, so capturing the timing of key milestones is crucial.

Two Middle East aluminum giants hit, together accounting for 4% of global capacity

The core of this disruption is that two aluminum facilities in the Middle East are damaged at the same time.

The Al Taweelah smelter under UAE’s EGA (annual capacity 1.6 million tons) was hit by missile and drone attacks; the company announcement shows the damage is “severe.” Alba, Bahrain’s Aluminum (Alba), a 1.6-million-ton capacity facility located in Bahrain, was also struck on March 28 (Saturday). Damage assessment work is still ongoing.

The two facilities together have annual capacity of 3.2 million tons, about 4% of the world’s total primary aluminum output. And currently, the extent of damage at both sites is still unclear, creating a major uncertainty factor on the supply side.

Goldman Sachs pointed out that, well before this attack occurred, Alba had voluntarily implemented a controlled shutdown of production lines 1 to 3 on March 14. This portion of capacity accounts for 19% of its total capacity. This military strike further intensified the market’s concerns about the overall supply outlook for Middle East aluminum industry.

Supply disruption exceeds demand decline; aluminum price targets are raised across the board

In response to the situation above, Goldman Sachs made a fundamental adjustment to the 2026 aluminum market’s supply-demand outlook.

Specifically, Goldman Sachs cut its forecast for 2026 aluminum production in the UAE from 2.7 million tons to 1.95 million tons, and lowered its forecast for aluminum production in Bahrain from 1.5 million tons to 1.1 million tons.

Analysts emphasized clearly: the negative impact of this supply interruption has exceeded the downside pressure on demand caused by the slowing global GDP growth. After offsetting the two, the net effect for the aluminum market is still significantly tightening.

On the price forecast level, Goldman Sachs raised its forecast for the full-year average LME aluminum price for 2026 from 3,100 USD/ton to 3,200 USD/ton. Its Q2 price target was also raised from 3,200 USD/ton to 3,450 USD/ton, which is broadly in line with current futures prices.

Shortage peaks in Q2; gradually eases in the second half as Indonesia’s new capacity is released

Breaking down by time dimension, the intensity of the aluminum market shortage this round is highly concentrated in Q2 2026.

Goldman Sachs expects that the global aluminum market deficit in Q2 will be as high as 1.2 million tons, forming the absolute main driver of the full-year 570,000-ton shortage.

Entering the second half, supply-demand pressure is expected to ease marginally. Goldman Sachs forecasts that as Indonesia’s additional capacity ramps up gradually, the global aluminum market will return to a slight surplus in Q4 2026, with the surplus amount around 190,000 tons. This seasonal rotation in supply and demand means that the strongest driver for aluminum prices will be concentrated in the first half of this year; as supply is repaired in the second half, price pressure will gradually increase.

Extreme scenario sensitivity analysis: aluminum price average could reach 3,400 USD; exceeding the peak of Europe’s energy crisis

Goldman Sachs also stress-tested extreme scenarios.

If the combined 2026 output of Bahrain, the UAE, Qatar, and Iran declines by 50% (compared with a reduction of about 30% in the baseline scenario), global inventories would fall to a critical low. Even if demand contraction driven by downward revisions to economic growth expectations is added on top, the full-year average aluminum price could still reach 3,400 USD/ton.

This price level would be 700 USD/ton higher than the full-year average aluminum price during the 2022 Europe energy crisis, setting a historical record.

Goldman Sachs believes that the core triggering factors for upside risk include: the actual degree of damage to the affected facilities exceeding current assumptions, further military strikes leading to more capacity shutdowns, and passive shutdowns caused by disruptions in raw materials or natural gas supply.

In 2027, supply returns in a big way; the aluminum market will shift from a shortage to a large surplus of 1.3 million tons

Although Goldman Sachs slightly raised its forecast for the 2027 aluminum price average to 2,750 USD/ton (from 2,700 USD/ton), its overall assessment of next year’s aluminum market remains cautious.

Analysts clearly expect that the global aluminum market in 2027 will see a large surplus of as much as 1.3 million tons. The forecast aluminum price for Q4 2027 is only 2,600 USD/ton, at which point aluminum smelters’ profit margins will return to a reasonable match with the coverage of inventory days.

The timing of supply returning is basically set.

Goldman Sachs pointed out that restarting “cold idled” capacity will take at least 6 months, and the restart cycle for damaged capacity is likely to be longer.

However, as new capacity continues to ramp up in places such as Indonesia, the 2027 market will quickly switch from shortage to a large surplus. From 2028 onward, Goldman Sachs keeps its forecasts for aluminum market supply-demand balance and prices unchanged—new low-cost supply will keep the aluminum market in a surplus pattern for the long term, putting sustained pressure on the long-term price center of gravity. When allocating aluminum-related assets, accurately capturing the timing of supply-demand rotations will be a key variable in determining whether an investment succeeds or fails.

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