Aluminum's correction has been swift and deep. From late April's peak of $3,538/t, the LME three-month contract shed more than $300 in two months, with the steepest losses concentrated in the last two weeks of June. The trigger was clear: the US-Iran framework deal signed June 17 opened a path to reopen the Strait of Hormuz, restoring access to roughly 9–10% of global aluminum production capacity concentrated in Gulf smelters operated by Emirates Global Aluminium (EGA) and Aluminium Bahrain (Alba). For three months, the market had priced in a sustained disruption. That premium is now unwinding.
But the Gulf supply is not back to normal. EGA's force majeure on European billet contracts remains in force, with the restart now pushed to September. Alba and EGA both suffered missile and drone damage during the Iran conflict that requires months of repairs. Wood Mackenzie estimated that under severe disruption scenarios, the global aluminum market could face a 4 million tonne deficit in 2026. The reopening of Hormuz removes the worst-case tail risk but does not solve the structural tightness that existed before the war. Alumina stocks at Gulf smelters are depleted. Restarting idled potlines takes weeks, not days. Goldman Sachs raised its Q3 2026 aluminum forecast to $3,300/t from $3,200, but cautioned that its bear case — a fast Gulf restart — would push prices down to $2,750/t.
Europe's physical premiums tell the real story. Fastmarkets' European duty-paid P1020 premium sits at $585/t spot, with May/June contracts settling at $625/t. The 6063 billet premium DDP North Germany is an extraordinary $1,175–1,250/t as of late May — reflecting the EGA force majeure removing the primary billet supplier to Europe's extrusion industry. These are not LME-plus numbers. These reflect a regional market where spot aluminum is genuinely scarce. The EU's Carbon Border Adjustment Mechanism (CBAM), which entered its definitive phase on January 1, 2026, is adding $150–230/t to delivered costs for coal-based metal, further stratifying premiums by carbon intensity.
The sanctions timeline on Russian aluminum is tightening. The EU 16th sanctions package imposed a 275,000-tonne import quota that expired on February 26, 2026. From that date through December 31, only pre-February 2025 contracts can be fulfilled. A full import ban takes effect on December 31, 2026. Rusal, the world's largest aluminum producer outside China, is already pivoting: Europe's share of Rusal revenue fell from 21% in 2024 to 16.4% in 2025 and is falling further in 2026. The LME has clarified restrictions on Russian aluminum in EU warehouses. Meanwhile, an investigation by OCCRP and the Irish Times revealed that Rusal-owned Aughinish Alumina in Ireland shipped $308 million in alumina to Russian smelters between April 2024 and March 2025. Belgium's foreign minister is lobbying to close this sanctions gap in the next EU package.
On the supply side, China is producing near its 45 million tonne per annum capacity cap, with 44 million tonnes of primary output in 2025 and strong margins driving restarts and new capacity in Xinjiang and Inner Mongolia. Indonesia is emerging as a new supply hub, with smelter capacity expected to triple by 2027 according to Goldman Sachs, but the ramp-up is slow and insufficient to offset ex-China constraints. The Mozal smelter in Mozambique, a 560,000-tonne-per-year facility owned by South32, was placed under care and maintenance in March 2026, removing significant supply from the European and Asian markets.
Analyst forecasts for the rest of 2026 reflect the tension between improving macro supply and structurally tight physical markets. ING sees the market in deficit through 2026 with prices averaging $2,900/t — a forecast that current spot prices have exceeded all year. The analyst consensus range for the full-year average, compiled by DiscoveryAlert, sits at $3,300–3,600/t, closest to where physical markets have traded. Just2Trade's analyst cluster projects $3,400–3,800/t for the average spot price. The World Bank's baseline of $3,200/t for 2026 looks conservative; spot prices traded above that level every single day in H1 2026.
The bear case — Goldman's $2,750/t — hinges on three things going right simultaneously: a fast and complete Gulf smelter restart, Indonesian capacity additions arriving on schedule, and a global manufacturing downturn that erodes demand. The bull case — $3,800–4,000/t year-end — assumes Gulf disruptions persist longer than expected, EU sanctions fully remove Russian metal from the European market by Q4, and CBAM compliance costs push premiums structurally higher. The truth, as usual, lies somewhere in between.
The LME aluminum futures curve is backwardated through September: the cash price exceeds the three-month forward. This means the market is paying you to delay delivery. European buyers: lock in LME-based contracts indexed to current backwardation now — when the backwardation flattens as Gulf supply returns, the all-in price rises. Secure billet supply immediately; the EGA force majeure is not resolved and billets at $1,200+ premiums will persist through Q3. US buyers: the all-in price (LME + Midwest premium + 50% Section 232 tariff) remains above $5,200/t. Evaluate whether near-shoring billet production or switching to secondary aluminum can reduce tariff exposure. For Q4 contracts, price a 15% probability of $3,800+/t if EU sanctions fully remove Russian metal before year-end. A collar at $2,900–3,800/t covers both the Goldman bear case and the structural bull case.