Structural Demand Tailwinds
Aluminium demand is no longer just cyclical. It is increasingly being driven by long-term structural shifts in the global economy. Electric vehicles, which use significantly more aluminium than conventional internal combustion engine vehicles, are a key demand driver. At the same time, the rapid expansion of renewable energy—particularly solar power—has boosted aluminium consumption, given its extensive use in panels, frames, and transmission infrastructure.Add to this the ongoing expansion of global electricity grids and broader electrification efforts, and the demand outlook looks robust. Industry estimates suggest aluminium demand could grow at around 2.5% annually over the coming years, providing a steady underpinning to prices through 2026 and beyond.
Supply Growth Struggles to Keep Pace
While demand accelerates, supply growth remains constrained. Global aluminium inventories are already at multi-year lows. London Metal Exchange (LME) aluminium stocks have declined by roughly 20% year-on-year, highlighting the tightness in physical markets.
China, which dominates global aluminium production, offers little relief. The country is operating at nearly 97% capacity utilisation, with production growth in 2025 limited to around 2.5%. With capacity caps firmly in place, China’s ability to meaningfully ramp up output appears limited.
Outside China, the situation is equally challenging. Aluminium smelters across the US, Europe, and parts of Africa are struggling to secure long-term power contracts, as they increasingly compete with energy-hungry AI data centres. Electricity costs and availability have emerged as a critical bottleneck for new aluminium supply.Recent disruptions underline this vulnerability. Century Aluminium’s smelter in Iceland faced a partial shutdown in late October 2025, while Mozambique’s Mozal Aluminium smelter is reportedly set to move to care and maintenance from March 2026 after failing to secure a power supply agreement.
Deficit Market Likely to Persist
India’s National Aluminium Company (NALCO) has indicated that it expects the aluminium market to remain in deficit for at least the next two years. On the cost side, the aluminium cost curve is clustered around $2,400 per tonne for nearly 90% of global producers. Historically, in a deficit environment, prices tend to trade well above this level, reinforcing the case for sustained strength through 2026.
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Implications for Listed Aluminium Producers
For listed aluminium companies, the outlook remains broadly constructive. Hindalco stands to benefit from higher aluminium prices through its Indian operations, although near-term cash flows could be affected by disruptions at Novelis’ Uzbeko unit following a fire incident. NALCO may face softer alumina prices in the short term but should gain from stronger aluminium realisations.
Vedanta’s aluminium business, which contributes a substantial share of its EBITDA, is also well positioned. The company is bringing new capacity on stream and is working to lower coal and bauxite costs by sourcing a majority of its raw materials from captive mines.
The Bottom Line
As 2026 approaches, the aluminium market appears firmly supported by a rare combination of structural demand growth and constrained supply. With inventories depleted, capacity additions limited, and power-related challenges persisting, aluminium prices may remain firmer for longer. For producers and investors alike, the coming year could mark the continuation of a tight, deficit-driven cycle rather than the end of it.
