Aluminium prices in Europe have continued their upward trajectory through May 2026, with LME 3-month trading settling around 3,650 USD/t on 22 May, briefly touching intraday highs near 3,676 USD/t. This represents a four-year peak and a year-on-year increase of roughly 52%, underscoring that the rally is not cyclical noise but a supply-driven repricing of the market.

The dominant driver remains physical tightness rather than demand expansion. The Persian Gulf disruption has materially altered Atlantic–Mediterranean flows, particularly after instability around the Strait of Hormuz and the resulting constraints on Gulf-origin metal logistics. Emirates Global Aluminium (EGA) has been a key variable in this shift, with force majeure declared on selected European billet contracts following damage to production assets earlier in the year. Although partial capacity has resumed, the market does not expect full normalization before August, and the gap is being absorbed through spot substitution rather than contracted supply.

This has translated directly into the European billet premium structure. Duty-paid premiums are now printing in the 585 USD/t region, with 625 USD/t secured for May–June delivery windows. The speed of the move, approximately +63% since pre-conflict levels, reflects not only lost Gulf availability but also the absence of scalable alternative supply into Europe. Secondary aluminium has partially filled the gap, but this has only redistributed pressure rather than easing it, as scrap availability remains structurally tight and pricing has followed primary metal upward.

A second layer of support is coming from regulatory cost inflation embedded in CBAM implementation. Since January 2026, the levy phase has effectively re-priced non-EU primary aluminium based on embedded carbon intensity, particularly penalizing coal-heavy production bases in India, parts of China, and legacy Russian-linked supply chains. The effective landed penalty, estimated in the 300–400 EUR/t range depending on emissions intensity, has reduced arbitrage opportunities into Europe and reinforced regional segmentation of pricing. At the same time, origin-based premiums for Russian metal remain structurally embedded at 60–90 USD/t within European rolling mill contracts, reflecting both compliance constraints and financing frictions.

On the demand side, there is no evidence of broad-based destruction. Automotive and construction demand in Europe remains stable rather than expanding, which means the entire price move is being absorbed through supply-side compression rather than consumption growth. This distinction is important: it implies that even modest supply restoration does not automatically unwind pricing, because the system has already adjusted to a higher marginal cost base.

In the near term, LME aluminium is effectively range-bound with an upward skew, with 3,500–3,850 USD/t acting as the working band. However, the sensitivity to marginal supply shocks is elevated. Any extension of Gulf disruption, further delays in EGA normalization, or additional tightening of compliance-driven import flows would not produce gradual price movement, but rather discrete repricing events toward the 4,000+ USD/t zone.