Indonesia aluminum faces narrowing high price window before 2027 surplus: SMM

By Dominikus

Indonesia's aluminum expansion is entering a time-sensitive phase as new smelter projects could benefit from a strong pricing environment in 2026 before a wave of global capacity additions pushes the primary aluminum market back into surplus in 2027, according to Shanghai Metals Market (SMM).

In a presentation at the Indonesia Critical Minerals Conference in Jakarta last week, SMM said the global primary aluminum market is expected to remain in deficit throughout 2026 under all three of its geopolitical scenarios, with supply shortfalls ranging from 1.06 million tons to 1.34 million tons.

The deficit is being driven by Middle East supply disruption, raw material logistics constraints and production cuts, even as high aluminum prices encourage producers outside China to accelerate commissioning schedules.

For Indonesia, the timing is critical. SMM expects the country’s primary aluminum operating capacity to rise to around 2.51 million tons in 2026 from about 870,000 tons in 2025, implying around 1.64 million tons of additional operating capacity.

The increase places Indonesia among the most important sources of new primary aluminum supply outside China, but SMM’s broader market outlook suggests that the strongest pricing environment may be concentrated in 2026.

SMM forecast LME aluminum prices in the second half of 2026 at a center of US$ 3,850 per ton under its first scenario, US$3,750 per ton under its second scenario and US$3,600 per ton under its third scenario.

By 2027, however, SMM expects center prices to ease to US$3,200 per ton, US$ 3,000 per ton and US$ 2,900 per ton under the same three scenarios, reflecting a shift from shortage premium to surplus pressure.

The expected change is tied to a rapid acceleration in new capacity outside China. SMM said its May estimate for newly added primary aluminum capacity outside China from 2026 onward was raised by 61.3% from its January forecast, to 17.1 million tons from 10.6 million tons.

For 2026 alone, SMM lifted its estimate for planned commissioned operating capacity outside China by 67.8% to 2.32 million tons from 1.38 million tons. Its 2027 estimate was also raised by 24.9% to 2.03 million tons from 1.63 million tons.

SMM said the acceleration is being driven by high aluminum prices and strong producer profits, which have encouraged developers to bring forward construction and commissioning schedules. Some existing projects are also operating beyond designed capacity.

The shift could change the risk profile for Indonesia’s aluminum projects. Smelters entering the market in 2026 may capture elevated prices and stronger regional premiums, while projects delayed into 2027 could face softer prices and heavier competition from new supply in other countries.

SMM expects the global primary aluminum market to move into surplus in 2027, with oversupply projected at between 690,000 tons and 1.42 million tons, depending on the pace of Middle East supply recovery and logistics normalization.

The firm identified labor availability, raw material logistics, cathode carbon block lead times, and power and energy reliability as key supply side uncertainties for the aluminum market.

These risks are particularly relevant for new smelter ramp ups, as aluminum production requires uninterrupted electricity, timely raw material delivery and experienced operating teams.

SMM said vessel capacity could prioritize oil and gas tankers if disruption continues around key shipping routes, potentially extending queues for alumina and auxiliary cargoes. Demand for cathode carbon blocks from Middle East restarts and new capacity additions elsewhere may also lengthen delivery windows.

Power reliability remains another key factor, as smelter restart and ramp up phases require stable electricity supply. Grid constraints could become a bottleneck for projects seeking to enter commercial operation during the current high price cycle.

SMM expects Indonesia’s operating capacity to increase further to around 3.56 million tons in 2027. Other major sources of new ex-China capacity next year are expected to include Angola, India and Saudi Arabia.

Editing by Reiner Simanjuntak