LME aluminum prices have defied analyst expectations by holding above $3,700/t through mid-2026, driven by a structural supply constraint that shows no signs of easing. China's informal cap on primary aluminum production at approximately 45 million tonnes per year continues to bind, preventing the world's largest producer from responding to robust global demand.
The cap, combined with high energy costs and emissions-related restrictions, has removed the traditional swing production that once balanced the global market. Chinese output has effectively plateaued, and with ex-China capacity additions limited to Indonesia (approximately 705 kt new capacity) and a handful of other projects, the global market remains structurally tight.
US trade policy has added another layer of complexity. Tariffs on aluminum imports have been raised to approximately 50%, causing US imports of primary aluminum to fall 14% in the first ten months of 2025 versus 2024. The result is an extreme domestic premium: US buyers are paying approximately 68% above the LME cash price to secure physical metal, with all-in US aluminum prices exceeding $5,200/t.
The supply situation outside China remains fragile. High power prices in Europe threaten smelter viability, and South32's Mozal smelter in Mozambique faces potential closure, which would further reduce metal available to European buyers. Despite strong LME prices, new greenfield smelters remain limited by power access constraints, climate policy, and capital availability.
Indonesia has emerged as a significant new supply source, with primary output reaching approximately 1.4 Mt and exports up 71% year-on-year. However, this is not yet enough to balance the market, and most observers expect the deficit to persist through at least late 2026.
Aluminum buyers face a structurally tight market for the foreseeable future. The China production cap is policy-driven and unlikely to ease, and ex-China capacity additions are insufficient. US buyers face an extreme premium that shows no signs of normalizing. Consider securing volumes on longer-term contracts with LME-linked pricing rather than chasing spot premiums, which could widen further.