Morgan Stanley is keeping a positive stance on aluminum prices as smelter shutdowns in the Middle East intensify against a backdrop of continued shipping disruptions through the Strait of Hormuz. The firm reports that 564,000 tonnes per annum of capacity in the region - equivalent to roughly 0.8% of global aluminum capacity - is in the process of shutting down, a development that amplifies already-tight market conditions.
The Middle East closures add to a recent 500,000 tonnes per annum smelter outage in Mozambique this month. The geographic mix of production and raw material supply in the Middle East complicates the situation: the region accounts for 9% of global aluminum output, but only 3% of global alumina and 1.3% of global bauxite. That imbalance makes local smelters heavily dependent on imports of raw materials that must transit the Strait of Hormuz, where shipping remains disrupted.
Raw material availability is emerging as a key operational constraint for regional producers. Converting bauxite into aluminum requires sequential processing steps and material ratios that are relatively steep - about two tonnes of bauxite to produce one tonne of alumina, and then roughly two tonnes of alumina to produce one tonne of aluminum. Market intelligence cited by Morgan Stanley, referencing Platts as of March 11, indicates variation in inventories among regional operators: Bahrain's Alba is reported to have very low stocks of raw materials, while Emirates Global Aluminium is said to hold a buffer of about two-to-three weeks.
Beyond the immediate Middle East disruptions, Morgan Stanley highlights structural and operational factors that it expects to support higher prices. The bank points to capped Chinese supply, limitations in power availability that are slowing capacity ramps in Indonesia, and broader difficulties in expanding production elsewhere. These elements form the basis for a bull-case aluminum price target of $3,700 per tonne in fiscal year 2026.
Market signals are consistent with an increasingly tight physical market. The aluminum forward curve has moved into steep backwardation - a condition where near-term prices are higher than future prices - reflecting urgency for prompt deliveries. Meanwhile, London Metal Exchange on-warrant inventories are reported to be at their lowest levels since May 2025. Regional premiums have widened as well, with all-in prices in Japan, Europe and the United States rising by more than the LME benchmark.
Taken together, the combination of Middle East capacity reductions, a recent Mozambican outage, constrained raw material flows and limited incremental production growth underpin Morgan Stanley's positive price outlook and its FY2026 bull-case target of $3,700 per tonne.