Tightened supply outlook and long-term demand bets have taken the three-month LME aluminium contract to USD 3,015.50 per tonne for the first time in more than three years, as of Friday, January 2, 2026. Perhaps, this is the beginning of price rally as projected by many market analysts for 2026. China’s self-imposed 45-million-tonne cap on primary aluminium production, trade restrictions driven by tariffs, and smelter shutdowns caused by prolonged energy crises have constrained global supply of the metal. Meanwhile, demand remains resilient, creating a widening gap that has set the stage for a price surge.
Global deficit outlook strengthens price momentum
Market intelligence projects a global deficit of around 2 million tonnes in 2026, sending the aluminium prices to an average of USD 2,900 per tonne. The price may further uptick if global industrial activity picks up creating more demand for aluminium in the market. However, the production growth is unlikely to keep pace with demand as China nears its cap and energy crises still loom in many parts of the world limiting production. Although Indonesia is adding new primary aluminium capacities of 705,000 tonnes, raising total output to 1.4 million tonnes, yet this expansion is unlikely to offset the deficit or bring a global balance until later 2026.
Until October 2025, Indonesia’s year-to-date primary aluminium exports were 414,600 tonnes, up by 71 per cent Y-o-Y from 243,000 tonnes during the corresponding period of the previous year. A balance can be struck only if this momentum continues. However, it is also to be noted that Indonesia exports 70 per cent of its shipments to China as the latter has a significant share in Indonesia’s alumina and aluminium production. In 2024, China secured a total of 325,000 tonnes of unwrought aluminium from Indoneisa.
China’s 45-MT cap remains the core supply constraint
The roots of the looming supply deficit trace back to China’s 45-million-tonne production cap, declared in 2017. Cut to 2025, China is close to the cap with an estimated output of around 44 million tonnes. According to the International Aluminium Institute, China produced 40.44 million tonnes of primary aluminium during January-November 2025, up by 2 per cent from 39.66 million tonnes during the same period of the previous year.
Alongside the restriction of domestic production, China, in 2024, cancelled export tax rebates for aluminium, with an aim to make Chinese aluminium more expensive on the international market and thereby reduce the export volume. The aim of the policy was reflected in reality with export volume reducing by 9.2 per cent year-on-year to 5.59 million tonnes through 2025.
Energy Crises continue to weigh on Western smelters
Outside China, aluminium smelters in Europe and the United States are still grappling with energy crises, particularly high costs. Till date, securing long-term power contracts at viable prices remains a major challenge, particularly as smelters now compete with AI data centres for electricity supply. While aluminium smelters typically pay around USD 40 per MWh under long-term contracts, technology firms are willing to pay as much as USD 115 per MWh, according to the Aluminum Association.
Europe’s aluminium production capacity has contracted by about 40 per cent since 2008 as closures have affected primary smelting operations across multiple countries. From 4.8 million tonnes of annual smelting capacity in 2008, Europe now has 2.9 million tonnes. This contraction accelerated during energy price volatility periods, particularly following the 2022 energy crisis when several major facilities ceased operations permanently. Today, around 800,000 tonnes of smelting capacity remains offline in Europe.
In the first eleven months of 2025, Europe produced 6.45 million tonnes of primary aluminium, registering an annual increase of only 0.78 per cent from 6.4 million tonnes compared to the hike of 3.2 per cent Y-o-Y recorded in 2024.
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In October 2025, Century Aluminum Company’s subsidiary company in Iceland was forced to temporarily stop production on one of its two potlines due to an electrical equipment failure. As a result, production at the smelter was reduced by about two-thirds. It will take 11 to 12 months to restart, adding to the already tight market.
Alongside the weakened production, the European Union is likely to be affected by supply disruption if South32 puts its Mozal smelter on maintenance from mid-March 2026. The smelter with 560,000 tonnes of capacity shipped 430,000 tonnes of the primary metal to the European Union in the first ten months of 2025. Mozal smelter is the top supplier of primary aluminium to the bloc with nearly one-fifth of the region’s total imports.
"We are expecting a deficit of around 600,000 tonnes now for next year," ING analyst Ewa Manthey said in an email. ING had previously seen a 200,000-tonne deficit in the global aluminium market, after a deficit half that size in 2025.
Imports into the European union has been declining over the years from 9.14 million tonnes in 2022 to 5.96 million tonnes in 2024. From Russia alone, the import volume decreased from 922,000 tonnes in 2021 to 350,000 tonnes in 2024. Exports have followed a similar trend, deflating over the years from 2.36 million tonnes in 2021 to 1.99 million tonnes in 2024.
Supply deficit deepens with US smelter closures and tariffs
Over the years, the United States witnessed several closures of primary aluminium smelters. In January 2024, Magnitude 7 Metals primary aluminium smelter in Missouri, which used to account for 20 to 30 per cent of the United States’ total production, was shut down. Earlier, in mid-2022, the Century Aluminium smelter in Hawesville, Kentucky, was forced to close, which still remains idle as of 2025. Alcoa’s Intalco smelter in Washington was closed in 2023, and is still showing impact in 2025. Historical data shows the number of aluminium smelters operating in the US has come down to 4 as of 2025 from 20 in 2000.
As of H1 2025, the United States’ primary aluminium production stood at 332,000 tonnes versus 339,000 tonnes during the corresponding period of the previous year. In tandem with the production, the United States’ exports of primary aluminium also dropped Y-o-Y in H1 2025 from 336,000 tonnes to 156,000 tonnes.
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Moreover, owing to the 50 per cent tariff on aluminium led by the Donald Trump’s administration, imports of the metal into the United States also decreased Y-o-Y from 3.004 million tonnes to 2.63 million tonnes through the first nine months of 2025.
In other parts of the world like in Australia, Rio Tinto’s Tomago smelter with 586,000 tonnes of annual capacity is at risk from 2029 after its current power agreement expires in December 2028.
Global output and deficit driven outlook
At the end of 2025, the world primary aluminium production totalled 67.489 million tonnes, up by only 1.14 per cent Y-o-Y from 66.74 million tonnes. On the other hand, the same period of the previous year had witnessed an increase of 3.2 per cent Y-o-Y from 64.66 million tonnes.
Taking all the factors into account, the global market is expected to see a deficit of around 200,000 tonnes in 2026, driven primarily by China’s 45-million-tonne cap and Century’s 12-month outage at Iceland. If Mozal shut down, the deficit will increase to around 600,000 tonnes.
So, as supply constraints are likely to persist, LME prices are expected to average USD 2,900 per tonne, with upside risks firmly linked to stronger-than-expected global demand.
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