LME Aluminum at $3,738/t with Steep Backwardation as Inventories Near Critical Lows

LME aluminum cash prices closed at $3,738 per tonne on June 4, down 1.54% from $3,796.50 but still near levels not seen in approximately four years. The forward curve shows extreme backwardation: December 2027 contracts trade at approximately $3,260/t, a $480/t discount to cash, reflecting market expectations that current tightness will ease only gradually.

Visible LME aluminum inventories have dwindled to approximately 335,000 tonnes, equivalent to just 1.5 days of global primary aluminum production (approximately 203,000 tonnes per day). This leaves effectively no buffer against supply disruptions, and has been described by analysts as 'lowish' and 'tight visible inventories.'

The global refined aluminum market is in deficit. Reuters polls indicate a deficit of approximately 100,000 tonnes in 2025 widening to roughly 365,000 tonnes in 2026, as demand growth outpaces limited new capacity additions. CRU Group estimates an even larger shortfall of 300,000-400,000 tonnes, driven by EV, grid, and clean-energy demand.

China's capacity cap of 45 million tonnes per year is a structural constraint. The country produced approximately 44 million tonnes in 2024 and is expected to hit the cap in 2026, limiting further supply growth. Given China produces about 61% of global primary aluminum, this cap is the single most important supply-side constraint in the market.

The price correction from the early-June peak of $3,855/t appears driven by technical profit-taking rather than a demand shift. LME alumina prices held firm at $305/t, suggesting production cost support for primary aluminum remains intact. The backwardation structure confirms that physical tightness, not speculative positioning, is driving the elevated cash price.