Aluminium and copper: A rally fuelled by structural strains and political uncertainty

Aluminium and copper prices have seen notable gains, reflecting a mix of supply constraints and policy developments. While short-term volatility remains, structural factors and geopolitical shifts continue to influence market dynamics. Understanding these drivers is key to assessing the outlook for 2026:

• Aluminium strength – Prices supported by production caps, environmental standards, and changes in China’s trade position.
• Copper challenges – Supply disruptions and tariff uncertainty add pressure to an already fragile market.
• Demand outlook – Energy transition and industrial applications underpin steady long-term demand for both metals.

Aluminium recently hit a three-year high, hovering around $2,900 per tonne. Other base metals including zinc, lead, and tin also recorded significant gains. Several factors are driving this upward trend for aluminium. Chiefly, US-China trade talks have progressed, with the US announcing NVIDIA’s most advanced chips will remain eligible for export to China. In addition, China is also set to suspend export controls on rare earth metals and end investigations into US chipmakers. Meanwhile, the US will pause some of the current administration "reciprocal tariffs" on China for another year and halt plans to implement a 100% tariff on Chinese exports that were set to take effect last year.

Geopolitical dynamics are also shaping aluminium prices beyond tariff challenges. A closer Russia-China relationship is visible through export and import of raw materials and commodities – including aluminium. China has increased its aluminium imports from Russia – almost doubling year-on-year. At the same time, China’s role in global aluminium markets is shifting. Exports of semi-finished aluminium products have declined, while imports of primary aluminium has risen. These changes suggest a fundamental change in China's position within global aluminium markets – transforming from a net exporter to potentially a net importer.

Another key factor of the increase in price is constrained supply, as China maintains a strict cap on aluminium production. The limit – set a 45 million tons of primary aluminium annually – was introduced to address overcapacity and environmental concerns. The Chinese aluminium sector has gone through significant growth, expanding from 4 million tons in 2002 to over 43 million tons in 2024, capturing approximately 60% of global production.

China’s environmental standards for aluminium production include a maximum energy consumption of 13,000 kWh per ton, stricter emissions controls, and a ban on new projects in heavily polluted regions. The aluminium industry is energy-intensive, with smelting operations traditionally relying on coal power. China's production limits aim to reduce carbon emissions by up to 65 million tons annually and support China's carbon neutrality goals for 2060. These environmental considerations have become increasingly important as China aims to balance industrial growth with ecological sustainability.

Beyond the geopolitical context and production caps, structural trends point to sustained growth in aluminium demand. The International Aluminium Institute (IAI) expects aluminium demand to rise by 40% by 2030, due to the following factors:

• Electric vehicle production – Aluminium is essential for battery housing and chassis components.
• Renewable energy – Solar panels, wind turbines, and energy storage systems rely on aluminium for its corrosion resistance and durability.
• AI-driven data centres – The surge in data centre construction for AI has added unexpected demand pressure, as the metal's thermal properties make it essential for cooling systems and electrical infrastructure.

Copper prices in London hit a new high in 2025, with 3-month London Metal Exchange (LME) futures trading above $11,400 per ton. Ongoing supply disruptions has driven this surge which is expected to persist in 2026. Estimates now indicate a 2.2% production growth for refined copper in 2026, down from previous forecasts of 2.8% growth. Average copper ore grades at major operations continue declining at 2-3% annually, forcing mining companies to process substantially larger volumes of lower-grade material to maintain equivalent copper output.  

Operational disruptions have significantly impacted Copper production and prices. In 2025 – Grasberg – the world's second-biggest copper mine, in Indonesia – suspended operations after mud flows flooded the site, resulting in sever safety incidents. In the Congo, a tragic event at Kalando mine in Lualaba province led to multiple casualties. Additional pressure may stem from delays at Teck’s Quebrada Blanca II project in Chile and the indefinite suspension of First Quantum’s Cobre Panamá. Slow output recovery in Chile, and recurring community protests in Peru have exacerbated the structural fragility of global copper mine supply, heightening risks of prolonged price volatility.

Copper pricing is caught between the production challenges and the unexpected tariff announcements, which have disrupted the term structure of premiums and influenced inventory strategies. Early last year, President Trump announced that tariffs will be applied on copper imports into the US market. However, by late July, the plan shifted: levies would apply only to value-added copper products, with potential tariffs on commodity-grade forms postponed until 2027 onwards.

US importers have accelerated copper orders as tariff uncertainty weighs on inventories and on pricing. Indeed, regardless of consumption patterns, prices are increasingly influenced by perceived scarcity and the risk of steep duties – potentially as high as 50% on refined copper imports. Our latest in-house forecasts now include scenarios exhibiting a production shortage of 40,000 tonnes in 2026, surpassing previous estimates and underscoring the intensifying supply-demand imbalance. These projections incorporate mine disruption frequency, Chinese smelter capacity constraints, and shifts in global import flows.

The increased risk of tariffs and production challenges have altered pricing upon trading location. The arbitrage between London and New York grew in 2025 to approximately $400 per ton – far above the typical $50-100 range – before retreating. Concurrently, US-bound shipments reached record quarterly volumes above 500,000 tons. Trading houses report that shipping costs, insurance, and financing remain profitable even at current premium levels. This suggests that the differential may persist as policy uncertainty continues.

Exchange-visible copper inventories have declined to critically low levels, amplifying price volatility and reducing market liquidity during supply disruptions. Historically, when inventory has declined below 200,000 tonnes, supply chain challenges intensify, location-based price differentials widen, and volatility spikes. The situation becomes more concerning given that a large portion of exchange-held copper is tied up as collateral for financing or committed to delivery contracts. As a result, this reduces the volume available for immediate physical settlement.

In summary, the demand for aluminium and copper is expected to remain resilient in 2026, even as China faces economic challenges such as deflation risk and subdued domestic consumption. Long-term structural drivers – such as decarbonisation and the global energy transition – will continue to exert upward pressure on prices. However, reduced volatility around trade policies may lessen the incentive to build inventories, helping to stabilise price disruption.