LME WEEK-Aluminium heads for surplus in 2027 as supply shock fades

By Tom Daly

Oct 16 (Reuters) - Aluminium is expected to swing into a surplus in 2027, potentially of more than 1 million metric tons, as analysts eye a wave of new supply from Indonesia and a recovery in flows from Gulf smelters.

Expectations for a supply bump have already helped push prices of the metal used in transport and packaging below $3,000 a ton this week to their lowest since December, after they hit four-year highs in June on trade disruptions from the Iran war and dwindling inventories.

"We expect a substantial rebound in Middle East supply, with output rising to 6.4 million tons from 4.8 million tons this year," Ross Strachan, head of aluminium raw materials at CRU, said.

The Middle East, which accounts for around 9% of global primary aluminium capacity, has seen shipments severely disrupted by the Iran war.

CRU sees a 1.4 million-ton surplus next year, compared to a deficit of 711,000 tons this year. The world produced 73.8 million tons of primary aluminium in 2025.

In Indonesia, where projects led by Chinese investors — unable to expand in their home market due to a capacity ceiling — are ramping up, CRU expects output to more than double from this year to 3.2 million tons in 2027.

GROWING PAINS

Other analysts assume lower surpluses, cautioning that extra supply will be hard-won. Uday Patel, senior research manager at Wood Mackenzie, projects oversupply of around 500,000 tons next year against a 900,000-ton deficit this year.

Gulf smelters are recovering but have been forced to use alternative routes to get their metal to export markets, bypassing the Strait of Hormuz at great expense.

"You could see a situation where you have a surplus but still elevated premiums and potentially prices," Patel said.

He sees around 1 million tons of additional production from Indonesia next year but points to "growing pains" in the country's aluminium sector.

"The smelters are being built quicker than the infrastructure," he said, with ports and power supply struggling to keep up.

Bank of America commodity strategist Michael Widmer notes that the market had previously expected Indonesia to produce more than 2 million tons of aluminium this year, whereas the actual number could be closer to 1.2 million tons.

"It's coming, but slower than people thought," said Widmer, who estimates 2.2 million tons of Indonesian supply next year — most of it in the second half — and a smaller surplus of 239,000 tons.