Aluminum has entered a new pricing regime where structural supply constraints, not cyclical demand swings, are the dominant price driver. The 2025 full-year gain of 17.4% was not a one-off but the beginning of a sustained repricing as the market digests the implications of China's production cap.
China's informal limit of 45 million tonnes per year of primary aluminum output is the single most important factor in the global market. With Chinese demand continuing to grow, the cap forces the rest of the world to fill the gap — but ex-China capacity is constrained by high power costs, permitting delays, and capital availability. New capacity in Indonesia and the Middle East will help, but not enough to prevent a widening deficit.
Demand growth from the energy transition provides the structural floor. Solar photovoltaic installations are highly aluminum-intensive, EVs use approximately 250 kg of aluminum per vehicle versus 160 kg for internal combustion engine cars, and grid modernization requires significant aluminum conductor miles. VanEck and S&P Global estimate aluminum demand growth of 3-5% annually through 2030 from these sectors alone.
On the supply side, smelter economics remain fragile despite strong LME prices. Power represents 30-40% of smelter production costs, and European smelters continue to operate at risk due to electricity price volatility. Chinese smelters face their own constraints: carbon emission reduction targets and power rationing during peak demand periods can force temporary curtailments.
Most analysts have revised their 2026 price forecasts upward. Where consensus was $2,700-2,900/t entering the year, the range has shifted to $3,500-4,000/t, with an increasing number of voices seeing a credible path above $4,000/t if supply deficits widen in H2 2026.
Aluminum is undergoing a permanent upward shift in its price floor. The previous $2,000-2,500/t range is unlikely to return given the China cap and energy transition demand. Procurement strategies should adjust to a new normal of $3,500-4,000/t LME. Consider multi-year contracts with price collars to protect against further upside while maintaining downside participation.