Highlights

  • LME cash aluminium settled at US$3,137/t on 10 Nov, up 1.8% on the week, as LME stocks slid to 226,850t and cash traded US$110 over three-month.
  • Thin LME and Chinese inventories are putting a floor under prices, outweighing hawkish Fed signals and a fading Middle East risk premium.
  • Gulf restarts and soft Chinese Demand point to looser Supply later, but for now prompt metal is scarce; watch LME stocks, the backwardation and China destocking.

The geopolitical premium is bleeding out of aluminium, but exchange stocks are so thin that prices keep finding support above US$3,100.

What happened

Cash aluminium settled at US$3,137 a tonne on the LME on 10 November, down 0.3% on the day but up 1.8% from US$3,082 on 3 November. It is also about 4.6% above the US$2,999 settled on 15 October, the lowest close in the recent settlement table.

LME stocks keep draining. They stood at 226,850 tonnes on 10 November, down from 238,875 tonnes in early October, and have not risen in any session since then. LME holdings of around 229,000 tonnes are widely described as a near 20-year low.

The forward curve tells the same story. Cash metal sits US$110 above the three-month contract, a steep backwardation that rewards anyone holding nearby metal. Cancelled warrants, metal earmarked to leave the warehouse, rose 14.5% to 17,375 tonnes on 5 November. Futures traded near US$3,055 on 11 November, up about 1.6% on the day.

Why it happened

The short answer is a shortage of prompt metal. China's social inventory of aluminium ingot fell 28,000 tonnes week on week as of 5 November. Trader stocks in the Central Plains region fell to about 70,000 tonnes, with even less in South China.

Low inventories act as a floor, because there is little discounted metal around to sell into dips. Steady Downstream restocking has also limited the downside.

That floor is holding against considerable headwinds. Fed officials have backed further gradual rate rises, and markets see a high chance of a December hike, which props up the dollar and weighs on metals. US September PCE Inflation ran at 3.6%, well above the 2% target.

The Middle East premium is fading too. Indirect US-Iran talks have reduced fears of a Strait of Hormuz blockade. EGA had restarted 631 of 1,262 cells at its Al Taweelah smelter by 21 October, and its chief executive said full output is still expected "during Q1 2027". Gulf restarts are running slightly ahead of expectations.

How it plays out

Demand is the soft spot. China's October aluminium processing PMI fell to 48.9%, below the 50 line, and buyers are restocking only as needed as the peak season ends. Chinese output is near record levels, and exports rose 25.9% year on year in September.

For now the winners are producers outside the Gulf selling into a tight prompt market, and holders of LME warrants. Consumers buying nearby metal pay for the backwardation. Japanese buyers did win some relief, agreeing Q4 premiums of US$255 a tonne, down 35% on the quarter.

The medium-term picture leans looser. Macquarie cut its 2026 Deficit forecast to 820,000 tonnes on faster Gulf restarts and expects prices to average US$3,050 a tonne in 2027, down from US$3,325 in 2026. Gulf output is expected to reach 75-80% of pre-war levels by Q1 2027, while new Indonesian capacity also comes online.

Next week, watch whether LME stocks keep falling and whether the US$110 backwardation widens or eases. Market forecasts point to LME prices of US$2,950-3,090 a tonne, with China's semis exports and destocking flagged as the key signals. Fed speakers reacting to US inflation data and any turn in US-Iran talks could also move the market.