Aluminium, a critical industrial metal, has seen a significant jump in prices in India and globally in 2025. Its lightweight nature, corrosion resistance and reusability make it indispensable for sectors such as transportation, construction, packaging and renewable energy. However, recent price movements reflect significant regional disparities and evolving supply-demand dynamics.

Indian aluminum prices at lifetime highs

Indian aluminum futures on the MCX platform are trading at 275 per kg, the highest level since January 2025 and up 14%. In contrast, prices on the London Metal Exchange (LME) hovered around $2,878 a tonne, the highest since 2022. Why this divergence raises a key question: Why is India at a trading premium?

Why the premium?
The premium in Indian aluminum prices can be attributed to several factors. Import restrictions and stringent BIS norms have reduced the flow of scrap and semi-finished aluminium, leading to a tight domestic supply situation. At the same time, strong domestic demand from sectors such as automotive, construction and power, due to ongoing infrastructure expansion, has added pressure on prices.

Additional costs related to logistics, regional premiums, taxes, and transport increase domestic prices more than global benchmarks. Moreover, the limited availability of recycled aluminum forces greater reliance on the primary metal, which is inherently more expensive, reinforcing the price gap between the Indian and international markets.

Global factors drive aluminum prices
Global aluminum prices are shaped by a combination of structural and cyclical factors, with energy costs being one of the most important drivers. Smelting is an energy-intensive process, and any increase in electricity prices directly increases production costs. Similarly, raw material constraints, such as shortage of bauxite and alumina, increase the cost of aluminum production. These supply-side pressures often coincide with geopolitical risks, where conflicts and sanctions disrupt established trade routes and create uncertainty in global supply chains.

Apart from 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 increase volatility, especially when the US dollar weakens, making commodities more attractive to investors. Together, these factors create a complex pricing environment where aluminum markets remain highly sensitive to both macroeconomic trends and industry-specific developments.

Supply-Demand Scenario: Global and India
Globally, aluminum production is projected to reach 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 aluminum production is 4.15 million tonnes, while domestic consumption is about 4.5 million tonnes, and is expected to double to 9 million tonnes by 2033. This imbalance underlines India’s vulnerability to import restrictions and changes in global prices.

Impact of the Russia-Ukraine War
The Russia-Ukraine conflict has significantly disrupted aluminum supply chains worldwide. Russia, which accounts for about 5% of global aluminum output, faced sanctions that reduced its exports to Europe and the United States, creating a supply gap in key consuming regions. The war also created an energy crisis in Europe, driving up electricity costs and forcing smelters to cut production, tightening supplies. 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 aluminum markets, contributing to higher prices and increasing volatility.

US tariffs and market distortions
In mid-2025, the US doubled tariffs on aluminum imports to 50%, sending the Midwest premium to record highs. This pushed US aluminum prices closer to $4,792 a tonne, creating a fragmented market where US prices trade at a steep premium to the LME. While domestic US production is growing, supply remains tight. Global trade flows have shifted towards Asia and Europe.

China’s Demand and Price Outlook
China is the largest consumer and producer of aluminum, accounting for about 60% of global production. Demand is strong in EVs, solar panels and infrastructure, though weakness in real estate affects growth. China is nearing its production limit of 45.5 million tonnes, which could lead to further imports and tightening of global supply by 2026.

Looking ahead, prices are expected to remain stable, supported by seasonal demand and supply constraints. With demand for EVs, renewable energy and packaging increasing, the long-term outlook for aluminum remains bullish, although volatility will continue 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 Haresh V, Head of Commodity Research, Geojit Investments)

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