Aluminum is finding a floor. After plunging 16% in June — the steepest monthly drop since the 2008 financial crisis — LME three-month aluminum has stabilized around $3,146/mt. The metal hit $3,080 on July 1, its lowest since February, before rebounding as a softer US dollar and renewed deficit fears provided a floor. The proximate cause of the June rout was a perfect storm: a surging dollar on Middle East escalation fears, the resumption of trade through the Strait of Hormuz (which raised expectations of renewed supply from the Persian Gulf), and profit-taking after aluminum's 22% year-to-date rally through late May.
But the physical market tells a different story than the June price action suggests. LME aluminum inventories have fallen below 300,000 tonnes for the first time since 2022, according to LME data. On-warrant stocks are even tighter — roughly 180,000 tonnes, covering barely five days of global consumption. The inventory draw has accelerated since April, with weekly withdrawals of 8,000–15,000 tonnes becoming routine. At this pace, LME stocks could challenge the 2022 low of 260,000 tonnes by August, which would trigger a sharp backwardation in the cash-to-three-month spread and potentially force short-position holders to scramble for deliverable metal.
Macquarie's latest forecast crystallizes the supply-demand imbalance. The bank projects a global aluminum deficit of 930,000 tonnes in 2026, driven by a combination of constrained Chinese production growth (the 45-million-tonne annual capacity cap is now effectively binding) and recovering ex-China demand. Chinese aluminum output rose only 1.2% year-over-year in the first five months of 2026, well below the 3–4% growth rates of 2023–2024. Yunnan province, which accounts for roughly 12% of Chinese aluminum capacity, continues to face hydropower curtailments during dry seasons — a structural vulnerability that the 450,000-tonne capacity expansion announced for 2026 will not fully address.
On the demand side, the picture is mixed but tilting constructive. China's official manufacturing PMI returned to expansion at 50.2 in June, and aluminum-intensive sectors — automotive (up 8% year-over-year for aluminum body sheet), packaging (up 5%), and solar panel frames (up 18%) — are all growing. The global aluminum can market, which consumes roughly 7 million tonnes annually, is expanding at 3–4% per year as beverage companies shift from plastic to aluminum. In the US, the Infrastructure Investment and Jobs Act continues to drive demand for aluminum electrical cable and transmission towers, with grid-related aluminum consumption up an estimated 12% in H1 2026 versus H1 2025.
The bear case rests on two pillars: the Strait of Hormuz trade resumption and smelter restarts. The US-Iran peace deal has reopened the Strait to normal commercial traffic, raising the prospect of renewed aluminum supply from the Persian Gulf, which accounts for nearly 10% of global output. Bahrain's Alba smelter (1.6 million tonnes annual capacity), the UAE's EGA (2.7 million tonnes), and Saudi Arabia's Ma'aden (780,000 tonnes) all ship through the Strait. However, analysts note that logistics and contractual arrangements mean supply from the region may take 4–8 weeks to reach major markets in Europe and Asia, meaning the physical impact won't be felt until late August at the earliest. Middle Eastern smelter restarts announced after the Iran deal are also proceeding more slowly than expected, with Alba's Potline 6 restart reportedly 3–4 weeks behind schedule.
ING's commodities team maintains a bullish stance, forecasting LME aluminum to average $3,200/mt in H2 2026, with upside risk to $3,400 if Chinese demand accelerates or if smelter restarts underdeliver. They note that the aluminum deficit is structural, not cyclical — driven by the Chinese capacity cap, rising alumina costs (LME Platts alumina at $330/tonne in early July), and the carbon cost embedded in European smelting (EU carbon allowances trading above €95/tonne). Goldman Sachs is more cautious, projecting a modest surplus in late 2026 as restarted capacity comes online, but acknowledges that the inventory buffer is so thin that any demand surprise or supply disruption would quickly flip the balance back to deficit.
Alumina — the feedstock for aluminum smelting — deserves separate attention. LME Platts alumina prices have held at $330/tonne through early July, supported by reduced Guinean bauxite exports during the rainy season and ongoing production issues at Australian refineries. Alumina typically represents 35–40% of aluminum's all-in production cost, so sustained alumina above $300/tonne puts a floor under aluminum prices around $2,800–$2,900/mt — the breakeven for the top quartile of smelters on the global cost curve.
The forward catalyst calendar is crowded. On July 15, China's Q2 GDP and industrial production data will provide the next demand signal. A reading above 4.8% GDP growth with strong industrial output would likely push aluminum back toward $3,250/mt. The Federal Reserve's July 30–31 meeting is the macro wildcard. And the LME's next commitment of traders report on July 14 will show whether the dominant long position holder that has controlled 30–40% of LME aluminum warrants since April has reduced or maintained their grip — a reduction would be bearish, while maintenance or increase would signal that the physical squeeze narrative still has legs.
Aluminum buyers have been handed a rare window. At $3,146/mt, the metal is trading 12% below its late-May peak and at levels that barely cover the 75th-percentile smelter cost curve when alumina at $330/tonne is factored in. This is a buying opportunity — but it won't last indefinitely. The playbook: (1) Cover Q3 requirements now, especially for standard P1020 ingot. The Strait of Hormuz supply won't reach markets until late August at the earliest, and LME inventories are hemorrhaging metal weekly. (2) For value-added products (billet, slab, foundry alloy), negotiate Q4 contracts in July rather than September. Midwest premium for billet is currently $0.18–0.20/lb; I expect this to rise to $0.22–0.24 by Q4 as automotive demand accelerates. (3) If your contracts are LME-linked with a fixed premium, consider switching to all-in fixed-price arrangements for January–June 2027 deliveries. The premium component has more downside risk than the LME price itself, and sellers are more willing to negotiate fixed all-in prices when LME is at a relative low. (4) Monitor alumina prices weekly — if LME Platts alumina breaks above $350/tonne, it signals that the aluminum cost floor is rising, and prices will follow. The 930,000-tonne Macquarie deficit is not a forecast that leaves room for complacency.