Indian aluminium prices at lifetime highs
Indian aluminium futures on the MCX platform are trading at 275 per kg, marking an all-time high and a 14% gain since January 2025. In contrast, prices on the London Metal Exchange (LME) hover around $2,878 per tonne, the highest since 2022. This divergence raises a key question: Why is India trading at a premium?
Why the premium?
The premium in Indian aluminium prices can be attributed to several factors. Import restrictions and stringent BIS norms have curtailed the inflow of scrap and semi-finished aluminium, creating a tight domestic supply situation. At the same time, strong local demand from sectors such as automotive, construction, and power, fuelled by ongoing infrastructure expansion, has amplified the pressure on prices.
Additional costs related to logistics, regional premiums, taxes, and transportation further elevate domestic prices compared to global benchmarks. Moreover, the limited availability of recycled aluminium forces greater reliance on primary metal, which is inherently more expensive, reinforcing the price gap between Indian and international markets.
Global factors driving aluminium prices
Global aluminium prices are shaped by a combination of structural and cyclical factors, with energy costs being one of the most significant drivers. Smelting is an energy-intensive process, and any rise in electricity prices directly inflates production costs. Similarly, raw material constraints, such as shortages of bauxite and alumina, add to the expense of manufacturing aluminium. These supply-side pressures often coincide with geopolitical risks, where conflicts and sanctions disrupt established trade routes and create uncertainty in global supply chains.
Beyond these structural challenges, policy and market dynamics also play a crucial role. Trade policies, including tariffs and duties, alter global flows and create regional price premiums, while environmental regulations impose carbon compliance costs that further burden producers. Additionally, speculative activity and currency fluctuations amplify volatility, particularly when the US dollar weakens, making commodities more attractive to investors. Together, these factors create a complex pricing environment where aluminium markets remain extremely sensitive to both macroeconomic trends and industry-specific developments.
Supply-demand scenario: Global and India
Globally, aluminium production is projected at 73.2 million tonnes in 2025, up slightly from 72.3 million tonnes in 2024. Demand is also growing, driven by electric vehicles (EVs), renewable energy, and packaging. In India, primary aluminium output stands at 4.15 million tonnes, while domestic consumption is around 4.5 million tonnes, and is expected to double to 9 million tonnes by 2033. This imbalance underscores India’s vulnerability to import restrictions and global price swings.
Impact of the Russia-Ukraine war
The Russia-Ukraine conflict has significantly disrupted aluminium supply chains worldwide. Russia, which accounts for about 5% of global aluminium output, faced sanctions that curtailed its exports to Europe and the United States, creating a supply gap in major consuming regions. The war also triggered an energy crisis in Europe, driving up electricity costs and forcing smelters to cut production, further tightening supply. In addition, Western buyers have increasingly avoided Russian metal, shifting their reliance to producers in China and the Middle East. This realignment of trade flows has reshaped global aluminium markets, contributing to higher prices and increased volatility.
US tariffs and market distortions
In mid-2025, the US doubled tariffs on aluminium imports to 50%, causing Midwest premiums to surge to record highs. This pushed all-in US aluminium costs near $4,792 per tonne, creating a bifurcated market where US prices trade at a steep premium over LME. While domestic US production is rising, supply remains tight. Global trade flows have shifted towards Asia and Europe.
China’s Demand and Price Outlook
China remains the largest aluminium consumer and producer, accounting for nearly 60% of global output. Demand is robust in EVs, solar panels, and infrastructure, though real estate weakness tempers growth. China is nearing its production cap of 45.5 million tonnes, which could force higher imports and tighten global supply by 2026.
Looking ahead, prices are expected to remain firm, supported by seasonal demand and supply constraints. With demand from EVs, renewable energy, and packaging set to rise, aluminium’s long-term outlook remains bullish, though volatility will persist amid policy shifts and geopolitical uncertainties. Globally, tariffs, sanctions, and sustainability mandates are reshaping trade flows and cost structures.
(The author of the article is Hareesh V, Head of Commodity Research, Geojit Investments)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
