What's fuelling the recent surge in aluminium prices?

Aluminium prices on the London Metal Exchange have risen sharply over the past couple of sessions after the European Union considered imposing more sanctions on Russian aluminium products. 

On the LME, aluminium prices had hit $2,622 per ton earlier on Thursday, its highest level since November 26, 2024. 

The three-month contract on the exchange was hovering around $2,620 per ton at the time of writing. 

Draft measures

The draft measures from the EU would be part of its 16th package of sanctions on Russia. 

The sanctions would come ahead of the three-year anniversary of the Russia-Ukraine war in late February. 

Restrictions on aluminium would be gradual with a timeframe and scope is yet to be determined, according to reports. 

Proposals, which are being discussed with member states, could be changed before formally introduced. The measures are likely to be rolled out next month. 

The US and the UK banned the import of metals produced in Russia in 2024. The EU has so far banned aluminium products, including wire, tube, pipe, and foil, which account for less than 15% of EU imports.

Russia is the world’s largest aluminium producer outside China, accounting for about 5% of global aluminium production.

EU’s aluminium imports have fallen

The European Union continues to purchase aluminium products from Russia. However, the volumes have declined over the last couple of years after Russia’s invasion of Ukraine. 

European imports of primary aluminium from Russia have decreased by 50% since 2022 and now account for approximately 6% of total imports.

Ewa Manthey, commodities strategist at ING Group, said in a note:

China, the world's largest consumer of aluminium, has seen a significant increase in its imports of Russian primary aluminium. 

During the first three quarters of 2024, China imported 263,000 tonnes from Russia, representing 33% of the total imports last year. 

“We expect this trend to continue in 2025,” Manthey said. 

China aluminium production nearing capacity cap

Aluminium production in China is reaching record levels, nearing Beijing's annual capacity limit of 45 million tonnes. 

The current output is approximately 43 million tonnes. Abundant rainfall has facilitated full-capacity operations in the Yunnan province, a region heavily reliant on hydropower for aluminium production, according to Manthey.

This surge in output follows several consecutive years of production cuts in Yunnan due to power shortages caused by drought conditions. The increased availability of hydropower has enabled smelters in the province to operate at maximum capacity, contributing significantly to the record-high national aluminium production figures.

This high production rate, coupled with Beijing's capacity cap, leaves limited room for further growth.

“China’s capacity cap also means that the country remains a net importer of aluminium,” Manthey further said.