Europe's aluminium duty-paid premium falls 18% in August as easing geopolitical risks erase war premium

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Europe's duty-paid aluminium premium has fallen sharply from the highs recorded earlier this year as the supply concerns that dominated the first half of 2026 continue to ease. The Rotterdam in-warehouse duty-paid premium has dropped from its mid-May peak of roughly USD 600 per tonne to around USD 490 per tonne for the August contract, while the forward curve suggests the market could see further easing through 2027.

The market has changed considerably over the past few months. Fears that the Middle East conflict could disrupt aluminium supplies have eased, more smelting capacity has returned, buyers have diversified their import sources and downstream demand across Europe remains weak. Together, these factors have gradually removed the geopolitical premium that had pushed physical aluminium premiums to multi-month highs earlier this year.

Market retraces after months of volatile trading

After climbing to roughly USD 600 per tonne in May, the premium stayed elevated at USD 593 per tonne in June before dropping sharply to USD 504.5 per tonne in early July. It then rebounded briefly to around USD 540 per tonne in mid-July before slipping again to USD 490 per tonne in August, its lowest level so far this cycle.

The mid-July recovery was largely driven by trading activity. Traders who had sold earlier returned to buy back positions and lock in profits, while the slower pace of production restarts led some market participants to reassess how quickly supply was improving. Buyers who had delayed purchases during the earlier correction also stepped back into the market once premiums appeared to stabilise. The recovery, however, proved short-lived as stronger supply conditions soon pushed premiums lower again.

Fading geopolitical risks and improving supply reshape the market

A major reason behind the fall in Europe's aluminium duty-paid premium has been the gradual disappearance of the Middle East "war premium".

The market has also received fresh supplies from several producers. Hydro has restarted around 75,000 tonnes per year of production at its Slovalco smelter, while Alcoa's San Ciprián smelter in Spain has returned to near full production. In Iceland, the Norðurál Grundartangi smelter has resumed operations after a partial shutdown that lasted from October 2025 to April 2026, further easing supply constraints that had supported higher premiums earlier in the year.

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At the same time, European buyers have expanded their sourcing options instead of relying heavily on the Middle East. Imports from Canada, India and other regions have increased, bringing more metal into the market. The additional supply has eased the tightness seen between March and May, when buyers were competing aggressively to secure available aluminium.

Weak downstream demand reinforces the decline

While supply conditions have improved, downstream demand has remained sluggish. Construction and manufacturing activity across Europe continues to soften, while elevated energy costs have squeezed margins throughout the aluminium value chain. Germany's recycled aluminium output declined during the first quarter of 2026 because of high electricity costs and weaker demand, reducing buyers' willingness to pay elevated physical premiums.

Macroeconomic conditions have added further pressure. Expectations of higher interest rates have strengthened the US dollar, weighing on dollar-denominated commodities and encouraging traders to unwind positions established during the spring rally. At the same time, rising aluminium production in China and Indonesia has contributed to a more comfortable global supply outlook.

The premium's forward structure has also accelerated the correction. As the market moved into a steeper contango, holders of physical metal found it more attractive to sell into the nearby market rather than carry inventories into future months, reinforcing the decline in near-term premiums even before physical market tightness had fully eased.

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EGA refinery restart talks become the biggest catalyst

While easing geopolitical tensions and improving supply explain the broader decline in Europe's duty-paid premium, one event emerged as the single biggest catalyst behind the sharp correction - the restart of Emirates Global Aluminium's (EGA) Al Taweelah alumina refinery in Abu Dhabi.

The refinery, one of the world's largest alumina facilities and a key part of EGA's integrated aluminium production chain, had remained offline for around three-and-a-half months after sustaining damage during the early stages of the Iran conflict. Because alumina is the essential feedstock for primary aluminium production, the outage represented more than a regional supply concern. It disrupted a critical stage of the aluminium value chain and became one of the principal reasons behind the premium that developed across the European market during the first half of the year.

The recovery took place in phases. On 24 June 2026, Al Taweelah resumed aluminium hydroxide hydrate production, the intermediate stage before alumina output. The refinery reached another milestone on 10 July, when EGA confirmed it had restarted alumina production. Following the announcement, LME three-month aluminium prices fell by as much as 2.1 per cent during intraday trading before closing 1.8 per cent lower, reversing the bullish momentum that had supported prices over the previous five weeks. EGA also announced that the refinery would reach 50 per cent of capacity within days and return to full technical capability by the end of 2026.

This explains why the decline from USD 593 per tonne in June to USD 504.5 per tonne in early July was much steeper than the gradual easing seen earlier in the year.

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Forward curve points to further easing

The forward curve suggests the correction is not over yet. Premiums are expected to remain broadly stable at USD 490-492.5 per tonne between August and November 2026 before easing to USD 480 per tonne in December. The curve then points to USD 450 per tonne throughout the first quarter of 2027, followed by a further decline to USD 430 per tonne from April through at least October 2027.

The pricing pattern suggests the market expects supply conditions to continue improving gradually rather than change overnight. The projected decline also coincides with Europe's annual aluminium term-contract negotiations, indicating that the current supply-risk premium could largely disappear by the end of the first quarter of 2027. Even so, the forward curve indicates premiums are unlikely to return to pre-2026 levels, as structural factors such as the EU's Carbon Border Adjustment Mechanism (CBAM) and Europe's higher energy costs are expected to keep a floor under the market.