Goldman Sachs has revised its aluminum price forecast downward, citing a faster-than-anticipated recovery of smelting capacity in the Middle East, a development that is reshaping global supply and demand dynamics.

In a July 6th research note, the investment bank significantly lowered its average price forecast for LME aluminum in 2027 to $2,700 per tonne from a previous estimate of $2,950. It also cut its Q4 2026 forecast to $2,950 per tonne from $3,200. Both revised figures are notably below the current futures price of $3,056 per tonne.

Key Factors Behind the Downgrade

The core logic for the downgrade is straightforward. The accelerated restart of the Al Taweelah smelter, coupled with a broader, faster supply recovery across the Middle East, has led Goldman Sachs to increase its supply forecasts by 620,000 tonnes for 2026 and 920,000 tonnes for 2027. Consequently, the projected market deficit for 2026 has narrowed sharply to 100,000 tonnes from 720,000 tonnes, while the forecast surplus for 2027 has expanded to 1.5 million tonnes from 590,000 tonnes. This expected inventory rebuild is seen as a major factor that will suppress smelter profitability and put downward pressure on aluminum prices.

Accelerated Restart at Al Taweelah

The faster-than-expected restart progress at the Al Taweelah aluminum smelter, owned by Emirates Global Aluminium (EGA), was the direct catalyst for Goldman Sachs's forecast revision. Recent updates indicate that hot metal production has resumed, with approximately 7% of the electrolytic cells already back online. Based on this progress, Goldman Sachs has moved forward its projected timeline for the plant to reach full capacity to the end of Q1 2027, a significant acceleration from its previous estimate of late 2027. While EGA has officially stated that a full recovery to pre-incident capacity levels could take up to a year, the company is actively pursuing an accelerated schedule, and market feedback suggests potential for an even faster ramp-up.

Indonesian Supply Expansion Adds Pressure

While the Middle East recovery is significant, Goldman Sachs emphasized that its bearish outlook for 2027 aluminum prices is driven to a greater extent by supply expansion in Indonesia. The bank forecasts that Indonesian aluminum capacity will contribute a year-on-year increase of approximately 1.2 million tonnes to global supply in 2027, equivalent to 1.5% of global supply growth. This structural supply increase, combined with the Middle Eastern capacity recovery, forms the dual drivers of the projected ~1.5 million tonne surplus in 2027.

Implications for the Market Balance

From a global supply-demand balance perspective, primary aluminum production in 2027 is projected to reach 78.905 million tonnes, a 5.1% year-on-year increase. Meanwhile, primary aluminum consumption is forecast to be 77.405 million tonnes, growing by 3.0%. This indicates that supply growth is outpacing demand growth. As the market shifts into a surplus of around 1.5 million tonnes in 2027, Goldman Sachs expects global aluminum inventories to rebuild continuously. Total inventories are projected to rise from 9.322 million tonnes in 2026 to 10.821 million tonnes in 2027, with inventory measured in days of consumption increasing from 45 days to 51 days. This inventory accumulation will directly pressure smelter margins, which are expected to normalize from recent elevated levels.

Market Reaction and Further Downside

Aluminum prices have already reacted, falling sharply from around $3,400 per tonne to approximately $3,100 per tonne following initial news of de-escalation in the Middle East. This decline reflects a repricing of the risk premium associated with Middle East supply disruptions, compounded by a broader sell-off in technology/AI-related sectors and macro risk aversion linked to shifting expectations for Federal Reserve policy. However, Goldman Sachs's latest forecasts suggest there is still significant downside from current price levels. The bank's new 2027 annual average forecast of $2,700 per tonne and its Q4 2026 forecast of $2,950 per tonne remain substantially below the current forward curve price of $3,056 per tonne.