Insight Focus
The global aluminium market tightened sharply this month. Geopolitical risks, energy costs and logistics disruptions collided with structurally constrained supply. With limited smelter restarts and strong demand from electrification sectors, aluminium entered a stress‑deficit phase.
From Marginal Tightness to Stress Deficit
Fundamentally, the aluminium market has shifted from expected marginal tightness to what several analysts now describe as a “stress‑deficit” regime. Estimates point to a global primary aluminium deficit of roughly 1.7–2.4 million tonnes in 2026, driven by geopolitical disruptions, energy constraints and limited new smelting capacity outside China.
Source: International Aluminium
On the demand side, Chinese consumption remained resilient, supported by EVs, power grids, solar PV and energy storage, offsetting weakness in property. Elsewhere, demand growth was uneven but steady, with restocking constrained more by price and availability than by end‑use collapse.
With significant European capacity still idled and few economically viable restarts, the market entered May with little visible supply relief, keeping prices, premiums and arbitrage firmly in focus.
Prices Surge as Geopolitics Tighten Already Fragile Market
Global aluminium prices moved sharply higher over the past month, driven by acute supply risks layered onto an already tight structural backdrop. LME aluminium rose roughly 3–4% month‑on‑month, touching USD 3,580–3,650/tonne in late April and early May, with intra‑month spikes above USD 3,670/tonne, the highest levels since 2022.
The rally was catalysed by escalating tensions in the Middle East, especially concerns over shipping through the Strait of Hormuz, a critical artery for Gulf aluminium exports that account for roughly 9% of global supply and a far larger share of tradable, non‑Chinese metal.
Beyond geopolitics, prices were underpinned by energy‑driven cost inflation, limited global smelter restart capacity and expectations that China’s production cap would remain binding. Market commentary increasingly framed aluminium as a “supply‑risk metal,” with volatility spikes reflecting logistics and power availability rather than demand destruction.
Physical Premiums Hit Extremes Across Europe, Japan and the US
Physical differentials widened aggressively in April, reinforcing the disconnect between the LME headline price and regional availability. European duty‑paid premiums surged toward USD 550–650/tonne, reflecting persistent import reliance, tighter low‑carbon supply ahead of CBAM enforcement, and the loss of capacity such as South32’s 560,000 tonne/year Mozal smelter.
Source: CME
CME premium curves showed the strength extending into mid‑2026 before easing in 2027, signalling expectations of prolonged tightness rather than a short‑term squeeze.
In Asia, the Japanese MJP (P1020A) premium held around USD 350–365/tonne, roughly 80% higher quarter‑on‑quarter, supported by reduced Middle Eastern flows and higher freight and energy costs. The US Midwest premium remained elevated, reinforced by tariffs and scrap retention policies that limited substitution options for domestic consumers.
Trade Flows Re‑routed as Arbitrage Signals Flash Red
Extreme premium divergence reopened and reinforced cross‑regional arbitrage windows through April. Strong netbacks into Europe and North America continued to pull metal away from Asia, tightening availability in traditional import markets and accelerating inventory drawdowns in Asian LME warehouses.
By contrast, China traded at a relative discount, reflecting domestic price controls, weaker property demand, and the lingering impact of export restrictions on primary material.
While Chinese exports of semi‑fabricated products remained robust, net exports of primary aluminium stayed constrained by policy and the 45-million-tonne capacity cap, reinforcing the bifurcation between Chinese and ex‑China pricing. Traders increasingly focused on logistics optionality and premium capture rather than outright price direction, with freight, financing and carbon credentials becoming central to arbitrage economics.
Source: Drewry
Scrap and Secondary Aluminium Take Centre Stage
Another defining feature of the past month was the sharp repricing of scrap and remelt grades, as consumers sought substitutes for scarce primary metal. Some scrap prices jumped USD 130–140/tonne within weeks in some regions, while alloys such as ADC12 and 6063 tightened markedly, particularly in construction and EV supply chains.
China’s aggressive scrap import appetite—part of a broader push to expand secondary aluminium capacity—intensified competition with Europe and the US, both of which are increasingly restricting scrap exports to support domestic circularity goals. This reinforced a two‑tier market in which low‑carbon and recycled aluminium commanded rising “green” premia, particularly in Europe under CBAM rules.
Recent disruption to scrap flows has reinforced this tightening dynamic. In India, shortages linked to the Middle East conflict have pushed scrap prices up ~30% and forced secondary producers to cut output by 20–40%, with inventories largely depleted. The resulting cost pressures are beginning to pass through to end users, highlighting how geopolitical risks are now constraining not just primary supply, but also the availability of recycled units.
