By Nora Redmond
The London Metal Exchange (LME) aluminum cash bid price reached a four-year high last week.
Aluminum could be heading toward $4,000 a ton in the next three months, with its most bullish set-up in over 50 years, according to Citigroup.
The metal has been rocked by one of the largest supply shocks since the 1950s. This comes from analysts at the New York-based bank, led by Wenyu Yao, a senior metals strategist, in a note on Monday.
On Monday, the London Metal Exchange (LME) aluminum cash bid price was at $3,635, with a four-year high of $3,767 reached last week.
As the probability of continued tightening rises, the analysts said they see a &#34;credible path&#34; to aluminum hitting $4,000 within the next three months - and averaging at for the second half of the year - if weakening demand is unable to offset constrained supply.
In their bull case, the metal will average $5,350 a ton in 2027, which they have said has a 30% chance.
Multiple aluminum smelters in the Middle East were forced to halt or reduce operations as the war in Iran escalated. The region accounts for around 9% of global production, but a much larger proportion of seaborne trade, according to ING.
&#34;Following the Middle East disruption, supply elasticity has fallen across the system as China remains capped and ex-China supply growth is insufficient to offset ongoing deficits,&#34; Citi said. &#34;Unlike previous downturns where weaker demand and eventual supply rationalisation loosened the market, the current shock is supply-driven and much of the damage is already done.&#34;
Per Citi, China accounts for a much larger share of aluminum consumption than during the global financial crisis of 2008-2009, with demand nearing 60% of the global rate, meaning it no longer has the same ability to rapidly add significant volumes of supply. This has weakened the market's previous self-correcting mechanisms.
The Citi analysts wrote that they are anticipating a 2.7-million ton reduction in supply this year, even as demand slows. Only a severe recession similar to the one in the early 1980s or the global financial crisis could help bolster supplies.
In their view, if aluminum consumption outweighs its production, inventory drawdowns will have to support the imbalance - which Citigroup says is the main issue currently facing the market.
-Nora Redmond
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Citigroup analysts predict aluminum prices could reach $4,000 a ton within three months due to significant supply shocks, with the LME aluminum cash bid price recently hitting $3,635. The Middle East disruptions and reduced operations at smelters have tightened supply, while demand remains high, particularly from China. Analysts foresee a 2.7-million ton reduction in supply this year, leading to potential inventory drawdowns if consumption exceeds production.

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Aluminum could hit $4,000 a ton amid most bullish set-up in over 50 years