European aluminum premiums have softened significantly as the confluence of Gulf supply recovery, moderating power prices, and smelter restarts increases regional availability. The duty-paid P1020 AIP premium fell to $385-415/t, a $65/t decline from the May peak.
German power prices have declined to €68/MWh, down 12% from May and well below the €120-150/MWh levels that forced smelter curtailments in 2022-2023. Several European smelters have announced capacity restarts, adding an estimated 250,000 tonnes of annualized output to the market.
The European physical market was particularly tight during the Hormuz crisis because the region sources approximately 30% of its alumina and primary aluminum from Gulf producers. As shipping routes normalize, inflow of material is improving.
Despite the premium easing, European supply remains structurally constrained by high carbon costs and regulatory uncertainty around CBAM. The premium floor is likely in the $300-350/t range, above historical averages of $200-250/t.
The European premium decline is an opportunity to fix Q3 premiums below $400/t. Target $350-380/t for contract negotiations. However, the premium will not return to pre-2022 levels given structural CBAM costs. Secure Q4 premiums now while the disruption premium is still unwinding.