Aluminium Deficit Slashed, Sulphur Crisis Deepens: The Hidden Forces Reshaping Metals Markets in 2026

"The concern now is what the numbers do not yet fully show: inventories depleting, cost pressures building slowly, investment decisions deferred, and demand reorienting away from China," Wood Mackenzie noted . The aluminium market was already trending toward a structural deficit before the conflict, driven by Chinese capacity caps (reaching 45 Mt in 2025) and surging demand from EVs, solar panels, and AI data centres .

The Sulphur Crisis: A Concealed Supply Shock

The single most underappreciated force pressuring metals markets in 2026 is a generational disruption in sulphur supply.

The closure of the Strait of Hormuz on February 28 effectively immobilised Gulf sulphur output, a by-product of oil and gas that supplies roughly half of the world's sulphur . Prices have soared to unprecedented levels—CIF Indonesia sulphur hit $1,100–$1,300/mt by mid-May from roughly $500/t before the conflict .

Three simultaneous shocks have converged to produce the most acute sulphur supply disruption in a generation: the Hormuz closure, China's sulphuric acid export ban, and a Russian sulphur export ban . This has direct and serious consequences for metals producers:

• Indonesian nickel producers, which rely on sulphur for high-pressure acid leaching (HPAL), face squeezed margins in an already oversupplied nickel market . Some HPAL plants hold only one to two months of sulphur inventory .
• Copper plants are seeing tighter sulphuric acid availability, raising processing costs globally .
• The sulphur market was already in a pronounced deficit of about 1.9 million tonnes per year in 2025, before the war .

"What begins as an operational disruption in the Middle East is becoming a structural cost and supply chain challenge for global metals and mining markets," said Tony Knutson of Wood Mackenzie .

Copper Supply Outlook: A Fragmented Picture

Copper forecasts in 2026 are unusually divergent, signalling a market in fragile balance where small changes in assumptions produce sharply different outcomes.

• ICSG (May 2026): Revised its 2026 balance from a 150,000-tonne deficit to a 96,000-tonne surplus, reflecting demand softness .
• Morgan Stanley: Forecasts a much larger 600,000-tonne refined copper deficit for 2026, the largest in more than 20 years, driven by mine disruptions, US tariff risk, and sulphuric acid shortages .
• Fastmarkets: Expects a 170,000-tonne surplus, citing stronger supply and slower demand .
• J.P. Morgan: Projects a 330,000-tonne deficit, driven heavily by AI data centre demand .
• Bloomberg analyst consensus for copper in 2026 is roughly $13,007/tonne, with Macquarie at $13,165 and Goldman Sachs at $12,650 .

The wide forecast range—from a surplus of ~170,000 tonnes to a deficit of 600,000 tonnes—underscores how sensitive the market is to demand assumptions, mine disruptions, and sulphur-related production costs . The truth is that institutional forecasters disagree significantly on the magnitude of the deficit, which itself is important information for investors .

Major Policy Milestones Shaping Metals Markets

U.S. Mid-Term Elections (November 3, 2026). All 435 House seats and 35 Senate seats are up for election . Morgan Stanley expects the outcome to have only a "limited" direct stock market impact, but the balance of power in Congress will shape tariff policy, trade agreements, and energy/industrial legislation that directly affect metals demand and supply chains . The election could either extend or constrain Trump-era tariffs that have buffeted commodities .

Federal Reserve Rate Decisions. New Fed Chair Kevin Warsh has taken a notably hawkish stance, sparking speculation about rate hikes rather than cuts . Base metals rallied after the Fed's July 2026 pause—copper, aluminium, and zinc all rose as easing demand concerns lifted sentiment . However, markets remain cautious: higher borrowing costs typically dampen industrial demand and strengthen the dollar, pressuring commodity prices . The inflation feedback loop from the Iran conflict (energy costs, supply disruption) complicates the Fed's path. The June FOMC minutes revealed a deeply divided committee, split 9-to-8 on the prospect of rate hikes in 2026 .

Other Key Policy Factors:

• US Section 232 tariff risk on copper imports is tightening supply expectations .
• Tax cut extension expectations (legacy Trump-era policies) could boost consumer spending but also widen deficits, affecting dollar and rate expectations .
• Lingering effects of the 2025 tariff whirlwind from the Trump administration continue to reshape supply chains .

The Bottom Line

Wood Mackenzie's revised 900,000-tonne aluminium deficit is better than the worst-case scenario, but it is still a deficit. The sulphur crisis adds a structural cost layer that will persist as long as the Hormuz closure and export bans remain in place. Copper's fragmented forecast range—from a deep deficit to a modest surplus—is a warning that the market is balanced on a knife's edge. Add in the unknown variables of the US midterms and a hawkish Fed, and 2026 looks like a year of persistent price volatility, not stability. Investors and supply chain managers should watch sulphur inventories as closely as they watch LME warehouse stocks.