The strongest bull market in 50 years! Citigroup: Aluminum prices will rise by 4000 within 3 months, expecting to reach over 5000 US dollars next year.

The global aluminum market is experiencing the most severe supply shock in half a century, with top Wall Street investment banks issuing bullish signals one after another. According to a report released by Citigroup on May 18, the supply disruptions caused by the Middle East conflict combined with structural capacity constraints have pushed the aluminum market into an extremely tight state with the "lowest inventory in 55 years." Citigroup predicts that aluminum prices will rise to $4,000 per ton in the next 3 months, and under a bullish scenario, the average price in 2027 could reach $5,350. JPMorgan Chase has also warned clients that the global aluminum market is experiencing its largest supply gap in over 25 years, with aluminum prices expected to surpass $4,000 per ton and the current situation being characterized as the market officially entering a supply "black hole." The assessments of the two institutions point to a core conclusion: this round of price increases is not driven by strong demand but by structural damage on the supply side. Unless a severe recession comparable to the global financial crisis of 2008 occurs, there is limited downside potential for aluminum prices. London aluminum prices have recently risen above $3,600 per ton, reaching a four-year high. For investors, $4,000 is no longer a distant forecast, but a price point that is rapidly approaching reality. Middle East Conflict: Over 3 million tons of production loss has become definitive The direct trigger for the current aluminum market supply crisis is the large-scale permanent loss of aluminum smelting capacity in the Middle East region. Iran has launched direct attacks on two key smelters in Abu Dhabi and Bahrain, resulting in irreversible production losses and significantly reducing global aluminum supply expectations. According to data cited by Citigroup from Wood Mackenzie, aluminum production forecasts in the Middle East region have been significantly lowered compared to before the outbreak of the conflict, with losses exceeding 3 million tons. More importantly, the recovery path is highly uncertain and depends on factors such as the duration of the conflict, infrastructure repair periods, normalization of logistics, and restocking of raw materials. Citigroup believes that the possibility of a V-shaped rapid recovery in supply in the region is extremely low. JPMorgan Chase's assessment is consistent with this - even if the logistics in the Strait of Hormuz were immediately restored to normal, the global aluminum market would still face a severe and prolonged supply disruption, officially entering the supply "black hole" they described. The structural characteristics of the aluminum smelting industry further exacerbate this situation: once smelters are shut down, restarting them comes at a high cost and with great technical difficulty, requiring at least a year, if not longer, to fully recover supply. Supply Elasticity Zero: China capped, Middle East damaged, nowhere else to turn The reason why the loss of supply in the Middle East is difficult to replace lies in the fact that the global aluminum system's supply elasticity is nearly exhausted. Citigroup points out that after years of supply-side reforms, China's aluminum production capacity has been effectively constrained by upper limits. The historically abundant idle capacity has almost disappeared, and incremental supply cannot be released quickly. Outside of China, most profitable global capacity is operating at full capacity. Indonesia is one of the few regions capable of providing meaningful increments, but its expansion progress and timing still face execution and ramp-up risks. At the same time, Western manufacturers are in a particularly passive situation. Major aluminum sources have been effectively isolated from the US and European markets due to sanctions and trade tariffs. Factories are searching for alternative sources at higher prices, but for certain downstream products that are specifically produced by Middle Eastern smelters, the supply gap may prove impossible to fill. This means that the impact of this crisis is not only limited to prices but will directly impact the industrial chain of Western manufacturing. Demand Structure Has Changed: Green transition reduces downward elasticity Compared to historical downward cycles in the aluminum market, the current demand structure shows stronger countercyclicality, further narrowing the downside potential for aluminum prices. Citigroup points out that in the past, aluminum demand was highly dependent on traditional industrial cycles, with demand shrinking significantly in economic downturns, providing space for market self-repair. However, under the current structure, the proportion of aluminum demand in the energy grid, renewable energy infrastructure, and electrification supply chain has significantly increased. Citigroup's end-demand tracking model shows that energy transition demand accounts for nearly a quarter of China's total aluminum consumption, and China's consumption accounts for about 60% of global aluminum consumption. These types of demand have strong policy support attributes and are far less sensitive to cyclical slowdowns than traditional industrial demand. Furthermore, the price ratio between copper and aluminum is still at historically high levels, combined with structural costs of petrochemical raw materials higher than in the early 2010s, indicating that aluminum's substitutes are also expensive. Citigroup believes that downstream consumers are facing a world where "competitive material systems are equally expensive," significantly inhibiting the urgency of a large-scale shift to alternative materials. Inventories Approaching Historic Lows: Non-linear upside risks are accumulating Against a backdrop where supply-demand imbalances cannot be resolved by supply elasticity and demand substitution, the pressure on the aluminum market ultimately must be absorbed through inventory depletion, which is currently the most critical market contradiction. Citigroup points out that aluminum inventories were already at their lowest levels in 55 years before the crisis erupted. Currently, hidden inventory, financing inventory, trader inventory, and pipeline inventory can quietly absorb the supply gap for a certain period, which is why the tightening cycle of commodities often initially appears as high volatility and macro dominance rather than an immediate explosive rise. However, as time passes, continued inventory depletion will fundamentally change the market structure: aluminum inventory is not only a physical buffer but also a source of embedded short hedges related to financing and term arbitrage. A decrease in inventories means that these short positions will gradually be closed, reducing the foundation of embedded short positions in the market. Citigroup warns that under these conditions, a relatively small additional supply shortage can trigger disproportionate non-linear price reactions. Citigroup's baseline forecast shows that even in a scenario of weak demand, the aluminum market supply gap by 2026 will still be around 2.7 million tons. Only an extreme recession on par with the Volcker tightening era or the global financial crisis of 2008-2009 can essentially stabilize inventory coverage levels, rather than building inventories, which is fundamentally different from historical downward cycles in the aluminum market. This article is translated from "Wall Street Observer"; Editor: Li Fo.