{"id":9068,"date":"2026-01-07T07:24:16","date_gmt":"2026-01-07T07:24:16","guid":{"rendered":"https:\/\/www.alcircle.com\/blog\/?p=8169"},"modified":"2026-04-13T09:28:40","modified_gmt":"2026-04-13T09:28:40","slug":"aluminium-2026-from-operating-deficit-to-structural-backwardation","status":"publish","type":"post","link":"https:\/\/www.alcircle.com\/blog\/aluminium-2026-from-operating-deficit-to-structural-backwardation","title":{"rendered":"ALUMINIUM 2026: From operating deficit to structural backwardation"},"content":{"rendered":"\n

An early reading of the market and its strategic implications<\/em><\/strong><\/p>\n\n\n\n

Introduction: The market stopped looking at the present some time ago<\/h2>\n\n\n\n

The reports already in circulation confirm something that those of us who have been following this market for decades have been observing: aluminium has ceased to behave like a purely cyclical metal and is beginning to consolidate its position as a structural input in the global economic system.<\/p>\n\n\n\n

Today, futures markets<\/strong>, essentially the London Metal Exchange<\/strong>, where the largest volume of aluminium trading is concentrated, do not wait for balance sheets to reveal the problem, but anticipate the risk<\/strong>. And today, the risk is not in demand, which continues to grow, but in the system’s actual capacity to respond in time<\/strong>.<\/p>\n\n\n\n

Therefore, my central scenario for 2026 is not one of simply “firm” aluminium, but rather one of tense, anticipatory and probably structurally backwardated <\/strong>aluminium. Even so, we must remember that there are always corrections, as movements do not follow a straight line.<\/p>\n\n\n\n

The macroeconomic framework: Perhaps lower growth, but more intensive in aluminium<\/h2>\n\n\n\n

Although global growth may slow down compared to the historical average, I do not believe it will collapse. The United States, Europe and China are showing more moderate growth rates, but the world continues to urbanise, electrify, invest in infrastructure and replace materials (including, in many cases, aluminium instead of copper).<\/p>\n\n\n\n

Although aluminium does not lead economic cycles, it generally responds predictably to GDP momentum<\/strong>. Increasingly, recycled aluminium is also being incorporated.<\/p>\n\n\n\n

The growth we are seeing is less volumetric and more intensive per unit of economic activity<\/strong>.<\/p>\n\n\n\n

This explains why, even with lower overall growth, the demand for aluminium continues to increase as a share of global GDP.<\/p>\n\n\n\n

Global demand: Resilient and structural growth<\/h2>\n\n\n\n

Global aluminium consumption continues on an upward trajectory, always above<\/p>\n\n\n\n

100 million tonnes<\/strong>. According to analysts, it is expected to exceed 107 million tonnes<\/strong>, considering both primary and recycled aluminium.<\/p>\n\n\n\n

It is worth reviewing the composition of demand:<\/p>\n\n\n\n

    \n
  • renewable energy and electricity grids,<\/li>\n\n\n\n
  • transport electrification,<\/li>\n\n\n\n
  • data centres and digital infrastructure (strongly driven by the expansion of artificial intelligence),<\/li>\n\n\n\n
  • sustainable packaging<\/em>,<\/li>\n\n\n\n
  • urban infrastructure.<\/li>\n<\/ul>\n\n\n\n

    Upstream: Geological abundance, economic rigidity and energy cost<\/h2>\n\n\n\n

    The “basic Coca-Cola formula”: what would it be like in aluminium?<\/p>\n\n\n\n

    One tonne of aluminium requires approximately 14 MWh <\/strong>of electricity <\/strong>per tonne in the smelting <\/em>process, and when mining and refining are added, the system consumes around 19\u201323 MWh of electricity equivalent per tonne <\/strong>(bauxite requires energy to be extracted and then converted into alumina).<\/p>\n\n\n\n

    Aluminium is, in essence, packaged<\/strong> <\/strong>energy<\/strong>.<\/p>\n\n\n\n

    Four tonnes of bauxite <\/strong>yield two tonnes of alumina<\/strong>, and with those two tonnes plus energy, one tonne of aluminium.<\/p>\n\n\n\n

    Let us analyse the components.<\/p>\n\n\n\n

    Bauxite and Alumina<\/h3>\n\n\n\n

    Bauxite is no longer the problem. Production is growing and Guinea is consolidating its role as the dominant marginal supplier. The risk there is geopolitical and logistical<\/strong>, not physical.<\/p>\n\n\n\n

    The alumina market has been in structural surplus <\/strong>since 2025, driven by new capacity in Indonesia, China and India. Alumina is no longer the bottleneck in the system.<\/p>\n\n\n\n

    Electricity<\/h3>\n\n\n\n

    Aluminium requires 14 MWh per tonne<\/strong>. The only place where these MWh cost USD 40 <\/strong>is in legacy hydroelectric <\/strong>schemes with political contracts <\/strong>(Canada, Norway, Brazil). These prices will probably no longer be replicable for new contracts or capacity increases.<\/p>\n\n\n\n

    MWh prices vary enormously: USD 70 – 100 – 150 – 200<\/strong>.<\/p>\n\n\n\n

    This implies that aluminium smelter profits are equally dispersed, and that the premium on the LME price, which is the same worldwide, varies significantly by region<\/strong>.<\/p>\n\n\n\n

    With a single LME and an MWh that can range from USD 70 to USD 200<\/strong>, the difference in competitiveness between smelters can exceed USD 1,800 per tonne<\/strong>.<\/p>\n\n\n\n

    Aluminium no longer competes solely on efficiency: it <\/strong>also competes on energy<\/strong> and the demand generated by artificial intelligence is increasing exponentially<\/strong>.<\/p>\n\n\n\n

    The real bottleneck: Primary aluminium and energy<\/h2>\n\n\n\n

    Primary aluminium shows a persistent<\/strong> <\/strong>deficit<\/strong>, with risk scenarios<\/p>\n\n\n\n

    in Mozambique,<\/strong> <\/strong>Australia<\/strong> <\/strong>and<\/strong> <\/strong>Iceland<\/strong>, which could increase it. The deficit for 2026 could,<\/strong><\/strong><\/p>\n\n\n\n

    according to conservative scenarios,<\/strong> <\/strong>exceed 150,000<\/strong> <\/strong>tonnes<\/strong>.<\/p>\n\n\n\n

    Competition with data<\/em> <\/em>centres<\/em>, regulatory uncertainty, unviable electricity contracts and environmental constraints could mean that marginal demand cannot be met quickly<\/strong>.<\/p>\n\n\n\n

    The common mistake: Looking at the balance sheet and not the curve<\/h2>\n\n\n\n

    Many analyses focus on the size of the deficit.<\/p>\n\n\n\n

    But the market does not operate on static balances<\/strong>; it operates on factors such as:<\/p>\n\n\n\n

      \n
    • immediate availability,<\/li>\n\n\n\n
    • risk of disruption,<\/li>\n\n\n\n
    • replacement cost,<\/li>\n\n\n\n
    • value of time.<\/li>\n<\/ul>\n\n\n\n

      With compressed inventories and rigid capacity, the spot price ceases to be a neutral benchmark<\/strong>. And when time is worth more than metal, the price structure and premiums change<\/strong>.<\/p>\n\n\n\n

      Structural backwardation: Not an anomaly, but a signal<\/h2>\n\n\n\n

      As I often say, theoretical contango (future prices higher than spot prices when interest rates, storage and insurance are taken into account) only exists to validate that it “never happens”.<\/p>\n\n\n\n

      Future prices reflect supply and demand and, except in the case of currency futures, have little to do with formulas.<\/p>\n\n\n\n

      Let us remember: a backwardation market is when the price for the nearest date is higher than the price for the furthest date (always referring to the futures price curve).<\/p>\n\n\n\n

      My central hypothesis is that aluminium has a high probability of entering into structural backwardation<\/strong>, not cyclical backwardation<\/strong>. This does not mean that it will be in backwardation all the time. There will be volatility in carries<\/em>, with a greater tendency to shift towards backwardation.<\/p>\n\n\n\n

      This is not due to absolute scarcity, but because, in expectation, the metal may be worth more today than the future price later on<\/strong>. This occurs when immediate availability becomes critical and carrying <\/em>loses economic sense.<\/p>\n\n\n\n

      2026 price projection: An early reading<\/h2>\n\n\n\n

      I believe we will see prices above USD 3,000 per tonne <\/strong>for three reasons:<\/p>\n\n\n\n

        \n
      • The market always anticipates. When the consensus accepts the deficit, the price is already looking at the next step.<\/li>\n\n\n\n
      • Backwardation<\/strong> <\/strong>can<\/strong> <\/strong>accelerate<\/strong> <\/strong>movements<\/strong>, as it puts pressure on the spot<\/em> <\/em>price.<\/li>\n\n\n\n
      • Energy risk is not yet fully priced in<\/em>. In fact, I believe it is underestimated.<\/li>\n<\/ul>\n\n\n\n

        My central scenario for 2026:<\/p>\n\n\n\n

          \n
        • LME aluminium is between USD 3,000 and USD 3,600 per tonne<\/strong>, with episodes of greater tension in the event of any energy or geopolitical disruption.<\/li>\n<\/ul>\n\n\n\n

          I am not talking about speculative spikes, but rather a new operating range <\/strong>consistent with the actual market structure.<\/p>\n\n\n\n

          Strategic implications of hedging <\/em>(generic view)<\/h2>\n\n\n\n

          This structural change forces us to rethink the logic of hedging<\/em>. Not from a technical standpoint, but from a market structure perspective<\/strong>.<\/p>\n\n\n\n

          When contango appears, if you are a producer or have stocks with an uncovered price and unsold, you have to take advantage of it.<\/h3>\n\n\n\n

          In a world of structural backwardation, any residual contango would be unnatural and temporary<\/strong>, probably reflecting temporary imbalances.<\/p>\n\n\n\n

          Generic strategy:<\/h4>\n\n\n\n

          When contango appears, it<\/strong> <\/strong>makes<\/strong> <\/strong>sense<\/strong> <\/strong>to<\/em><\/strong> <\/em><\/strong>lock<\/em><\/strong> <\/em><\/strong>it<\/em><\/strong> <\/em><\/strong>in<\/em><\/strong>.<\/p>\n\n\n\n

          Not because the market is bearish, but because that contango may not return<\/strong>.<\/p>\n\n\n\n

          The producer: Protecting yourself without giving away the upside<\/em><\/h3>\n\n\n\n

          For producers, the risk is not a sharp decline, but selling too cheaply too soon<\/strong>. Consistent generic approaches:<\/p>\n\n\n\n

            \n
          • Collars<\/strong>, to secure a floor without completely giving up on the upside-down scenario.<\/li>\n\n\n\n
          • Purchase of out-of-the-money puts<\/em><\/strong> as tail insurance against macro or financial events.<\/li>\n<\/ul>\n\n\n\n

            The logic is simple:<\/p>\n\n\n\n

            I would rather pay a premium and not use it than set a price today that will seem cheap tomorrow.<\/p>\n\n\n\n

            Let us remember that the puts purchased by a producer or stockist function as insurance. They never want to use them, just as they never want to crash their car to claim on their insurance.<\/p>\n\n\n\n

            The proactive consumer: Futures as a cost anchor<\/h3>\n\n\n\n

            For industrial consumers, using futures is not speculation<\/strong>, it is preserving operating margins. <\/strong><\/p>\n\n\n\n

            Generic strategy:<\/h4>\n\n\n\n
              \n
            • futures as a tool for predictability,<\/li>\n\n\n\n
            • not to “win with the <\/span>hedge<\/em>“, but to <\/span>prevent the price from destroying the business<\/strong>.<\/span><\/li>\n\n\n\n
            • Take advantage of backwardation to hedge more cheaply at future dates<\/strong>.<\/li>\n<\/ul>\n\n\n\n

              Conclusion: Aluminium as the metal of our times<\/h2>\n\n\n\n

              Aluminium has always been the metal of growth. Today, it is becoming the metal of time<\/strong>:<\/p>\n\n\n\n

                \n
              • energy time,<\/li>\n\n\n\n
              • time of delivery,<\/li>\n\n\n\n
              • time of reaction.<\/li>\n<\/ul>\n\n\n\n

                When time is worth more than metal, the market expresses it in:<\/p>\n\n\n\n

                  \n
                • backwardation,<\/li>\n\n\n\n
                • premiums,<\/li>\n\n\n\n
                • and higher prices.<\/li>\n<\/ul>\n\n\n\n

                  In the 1990s, copper was barely twice the price of aluminium (2,300 vs. 1,200); today, it is almost five times higher. Replacing copper, where possible, will also lead to increased demand.<\/p>\n\n\n\n

                  2026 will not simply be a “strong” year for aluminium; it will probably be the year when the market finally accepts that the previous balance no longer exists<\/strong>. And in that context, hedging <\/em>ceases to be defensive and becomes strategic again<\/strong>.<\/p>\n\n\n\n

                  Jorge Dyszel <\/strong>is one of the international leaders in risk management and derivatives in base metals<\/strong>. With over 40 years of experience<\/strong>, he was CFO of Glencore Latin America <\/strong>and Head of Trading and Hedging at Aluar Aluminio Argentino<\/strong>, combining a unique vision of both the physical and financial markets.<\/em><\/p>\n\n\n\n

                  He is an Official Educator of the London Metal Exchange (LME) for America and Spain <\/strong>and author of “To Hedge or Not to Hedge: Mastering Futures & Options to Become a Good Trader”<\/strong>, a practical and straightforward book that condenses decades of real experience in futures, options and risk management<\/strong>.<\/em><\/p>\n\n\n\n

                  His clear and applied style turns complex concepts into concrete tools for decision-making in real market contexts.<\/em><\/p>\n\n\n\n

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