Aluminum is trading at $3,198 per tonne on the LME as of June 29, down from the four-year high of $3,571/t hit on April 13 when the Strait of Hormuz closure removed approximately 8% of global output. The subsequent US-Iran deal and resumption of Gulf trade has brought some supply back online, but prices remain elevated versus any historical benchmark before 2024. The structural story has not changed. China cannot expand. Russian metal is being excluded. Western buyers compete for a shrinking pool of accessible supply.
China's self-imposed 45 million tonne per year primary aluminum production cap is now binding. Output reached 44 million tonnes last year and is effectively at the ceiling. The inclusion of aluminum in China's Emissions Trading System adds carbon costs that flow through to smelter economics. Combined with Beijing's removal of the 13% export rebate on 24 aluminum products, effective December 2024, Chinese aluminum is no longer the cheap marginal supplier it once was. LSEG and PricePedia analysis identifies the cap and carbon costs as the primary structural drivers of elevated LME prices.
EU sanctions on Russian aluminum are tightening on schedule. Under the 16th sanctions package adopted in February 2025, direct imports of Russian primary aluminum were subject to a quota of 275,000 tonnes until February 2026, with an additional 50,000-tonne allowance for pre-existing contracts through end-2026. The full prohibition takes effect on December 31, 2026, confirmed by the LME's sanctions notice. Rusal, the largest aluminum producer outside China with approximately 6% of the global market share, has pivoted exports toward Asia and China. Europe's share of Rusal revenue fell from 21% in 2024 to 16.4% in 2025 and continues to shrink. An estimated 90% of Russian aluminum now goes to non-EU markets, according to DiscoveryAlert.
The EU's Carbon Border Adjustment Mechanism, taking effect in 2026, adds another layer of import costs. European buyers face a triple squeeze: shrinking Russian supply, CBAM-related cost increases, and competition with US buyers for Middle Eastern metal. European premiums will need to rise to attract metal away from the US, according to consultancy CRU. The fracturing of the global aluminum market into regional pricing zones is now structural, not cyclical.
The US market is the extreme case. Section 232 tariffs were raised to 25% in March 2025 and doubled to 50% in June 2025. US Midwest premiums hit a record $1,942/tonne by November 2025, meaning the all-in US aluminum price sits above $5,000/t. The International Aluminium Journal reports that the average aluminum price could easily remain above $3,000/t in both 2026 and 2027. J2T Solutions cites Trading Economics' 12-month target at $3,800/t.
On the supply side, Indonesia is adding approximately 705,000 tonnes of new primary capacity, bringing total output to 1.4 million tonnes. But 70% of Indonesian exports go to China, and the net addition to the ex-China market is limited. Analysts at AlCircle note that this expansion is unlikely to offset the deficit or bring global balance until late 2026. The World Bank had forecast a 21.6% aluminum price increase, but LME spot prices exceeded that target before the report was published. DiscoveryAlert analysis notes that the consensus range of $3,300-3,600/t reflects structural tightness that most pre-2024 forecasting models failed to capture.
LME inventories are structurally low. At approximately 419,000 tonnes as of late March, they were the lowest since July 2025. Historical norms of 800,000-1,200,000 tonnes have been replaced by a structurally lower range of 300,000-600,000 tonnes, reflecting the permanent shift in how physical aluminum flows through exchange and off-exchange channels. A significant portion of LME-registered aluminum is Russian-origin and warrant-ineligible for many Western buyers, meaning headline inventory overstates accessible supply.
Citi analysts raised their short-term LME aluminum target to $3,600/t with a bullish scenario of $4,000/t, according to ChAI Insight. The downside risk is real: if Gulf smelters fully normalize, Indonesian capacity ramps faster than expected, and high prices begin eroding demand, prices could correct toward the mid-$2,000s. But for now, the structural supports — China cap, Russian sanctions, low inventories, and energy-transition demand — keep the floor elevated.
Aluminum buyers should operate on the assumption that the EU will fully prohibit Russian primary aluminum imports by year-end 2026, not extend quotas. Every tonne of Russian metal currently in your supply chain needs a replacement sourcing plan by Q4 2026 at the latest. Start qualifying Middle Eastern, Indian, and Australian suppliers now. For US buyers, the 50% tariff and record Midwest premiums make domestic contracting the only economically viable option — negotiate long-term agreements with US smelters directly, using the LME plus fixed premium structure rather than floating Midwest indexes. European buyers face the most complex environment: CBAM costs, Russian supply phase-out, and competition with US buyers for Middle Eastern metal. Fix Q4 2026 and H1 2027 volumes at current premiums before the December 31 EU ban deadline creates a scramble. For all buyers: aluminum at $3,200/t is below consensus forecasts of $3,300-3,600/t. The current level represents a relative buying opportunity. Lock in 50-60% of H2 2026 requirements at these levels with collars at $2,900-3,800/t.