Goldman Sachs (NYSE:GS) has raised its aluminum price forecast, predicting significant price hikes due to an anticipated inventory shortage.

The investment bank sees a tightening market, with demand exceeding supply, fueled by the global shift toward renewable energy and electric vehicles.

According to their estimates, the prices on the London Metal Exchange (LME) could reach $4,500 per metric ton in 2024 and climb to $5,000 in 2025. For context, LME aluminum traded around $2,650 per ton on Thursday.

Per Reuters, Goldman believes that “The estimated China GDP boost to prices is significantly larger for metals than for oil and coal largely because of China’s dominant share in global metals demand.”

The investment bank isn't alone in seeing the warning signs on the aluminum market. Australia, one of the world's top exporters and the largest bauxite producer, warned about the problem earlier this month. The Australian Aluminum Council renewed the pressures for aluminum, alumina, and bauxite to be included on the country’s critical minerals list to ensure long-term industry support and policy incentives.

"The current inclusion of aluminum on Australia's strategic mineral list acknowledges the metal's importance in the transition to net zero but does not come with much-needed policy support," said the council's CEO, Marghanita Johnson.

"We do not want aluminum to become the new nickel," she added, urging the government to act swiftly to avoid the challenges experienced by the nickel industry, which suffered an exodus from the continent and caused a notable job loss.

Australia produced 1.55 million tons of aluminum in 2023 and exported about 1.5 million tons globally. However, the country's aluminum sector faces rising capital and energy costs, labor shortages, and lengthy regulatory approvals.

Johnson highlighted that regulatory delays around environmental permits have exacerbated these issues, limiting the industry's ability to meet rising demand. She pointed out, "One of the greatest cost increases expected over the next five years will come from delays in environmental approvals, limiting access to bauxite for our alumina refineries."

On the LME, the recent aluminum price squeeze appears to have eased, bringing some relief to market participants. Since trading at a premium, October contracts have fallen to a discount against later-dated contracts following an intense selling period.

This price volatility stemmed partly from Trafigura's aggressive positioning in the aluminum futures market, which spurred a strong backwardation — a premium on near-term contracts.

However, if Goldman Sachs is right and inventory levels tighten, similar episodes of price volatility could arise again.

Now Read:  

• Gold Miner Newmont Corp Stock Falls After Q3 Results: Details

Image: Midjourney