Aluminum: Oversupply is accelerating, and there is still support in the short term (Morgan Stanley)

Street Signal | Aluminum: Oversupply is accelerating, and there is still support in the short term (Morgan Stanley)

Morgan Stanley believes that the faster-than-expected restart of aluminum smelters in the Middle East, coupled with the growth of Indonesian production capacity, will push the aluminum market to a surplus in 2027, and the supply gap will narrow to 1.1 million tons in 2026.

However, the market may still be tight in the short term in the third quarter, supporting a slight rebound in prices. The average price in the second half of the year is forecast to be US$3,150/ton, and the average price in 2027 is US$2,850/ton. One-sentence conclusion: The medium-term supply and demand pattern of aluminum is reversing.

Although there is still a rebound opportunity in the third quarter, the expectation of surplus in 2027 will suppress the price ceiling, and there is room for expansion in the copper-aluminum price ratio in the future.

Good/bad: It supports aluminum prices in the short term, which is good for aluminum production companies; it is bad for aluminum prices in the medium term, which is good for downstream consumers of aluminum, and is relatively good for copper. The current market may be underpricing the forward oversupply risk of aluminum.

Catalysts: 1) the actual resumption of production progress of aluminum plants in the Middle East; 2) changes in global aluminum inventories (especially LME);

3) China's aluminum export policy.