Tight Supply: The Key Driver in Europe's Aluminium Market

European aluminium markets remain sluggish, showing little recovery from the typical summer slowdown. With demand in key sectors like automotive and construction failing to rebound, trading activity has yet to pick up, leaving traders and distributors with limited sales opportunities. Despite this, premiums held steady throughout September, driven primarily by the tight supply rather than demand fluctuations, a trend that has persisted since early 2023.

A key factor behind the limited supply has been a series of production cuts across Europe over the past two years. Additionally, Russian aluminium has been largely absent from the market due to both official sanctions from countries like the UK and the US, and self-sanctioning by consumers. This has compounded the strain on availability, as China has aggressively increased its imports from international suppliers, further squeezing European access to aluminium.

Although premiums initially edged back to a range of $320-340/t earlier in the summer, they have since remained stable, flatlining between $320-430/t throughout June, July, and August, even as demand declined. Many expected that autumn would bring an uptick in demand, particularly from the automotive sector, but no such recovery has occurred. Germany, Europe’s largest economy, has been particularly affected, with its industrial production showing significant declines, especially in the construction sector, which has struggled throughout the decade. The automotive sector, led by giants like Volkswagen, has also suffered, with discussions of factory closures further dimming the outlook.

One market analyst noted, "There has been no bounce-back from the end of the summer. Stockists and distributors still have empty inboxes, which is very unusual for this time of year." Demand in both the automotive and construction sectors remains weak, yet premiums have not moved, reflecting the continued tightness in supply. China’s increasing aluminium imports, spurred by its near-cap on domestic production and energy efficiency mandates, have further limited supply in Europe.

Moreover, tightness in the alumina market, the primary input for aluminium production, has added additional pressure. A significant production drop from key supplier Rio Tinto, alongside high freight costs and limited exports from regions like the Middle East and India, have all contributed to the constrained supply environment. With demand expected to remain muted well into 2025, the European aluminium market seems likely to stay tight, making any small uptick in demand a potential trigger for premium increases.