Energy up, output down, demand weak; Europe’s aluminium squeeze

Key takeaways:

• Energy costs remain the core structural pressure, constraining European aluminium production and limiting recovery despite isolated restarts.
• Supply remains tight across regions, with curtailed output in Europe and reduced operating rates in key Middle Eastern and global smelters.
• Prices are elevated but demand sentiment is softening, with backwardation signalling short-term scarcity even as consumption weakens.

Energy price pressures remain elevated

“Elevated energy prices look set to persist and could worsen if the Strait of Hormuz does not reopen soon, with Europe’s summer restocking season adding further pressure on supply,” said Fastmarkets senior analyst Andy Farida.

Aluminium is one of the most electricity-intensive metals to produce, requiring around 14–15 megawatt-hours per tonne, according to the International Aluminium Institute.

Europe’s energy crisis

The European Commission said on May 8 that “there is no immediate security of [energy] supply concern for the EU,” but warned that “global price spikes remain a concern.”

“In Germany, recycled aluminium production fell by 3% in the first quarter of 2026, confirming the operational difficulties facing the European sector amid high energy costs, compressed margins and still-weak downstream demand,” said commercial director at Cauvin Metals, Massimo Grifone.

Alcoa’s San Ciprián smelter in Spain, which has a capacity of 228,000 tonnes, curtailed production in 2021 due to high energy costs but has since restarted and is now operating near full capacity, sources told Fastmarkets.

The smelter remains hedged through 2027 and is exploring longer-term power options, according to media reports.

Multiple European smelters have curtailed or halted output in recent years due to high energy costs, including Aldel in the Netherlands (offline since 2021), Uniprom’s KAP smelter in Montenegro and Speira’s Rheinwerk operations in Germany, both of which shut in 2023.

Fastmarkets analyst Andy Farida will be speaking at the Fastmarkets International Aluminium Conference in Budapest, Hungary, on September 15-17.

Aluminium supply tightness persists

Output from affected smelters in the region is estimated at 3.445 million tonnes in 2026, down by around 44% from 6.151 million tonnes in 2025, with recovery likely to take six to 12 months, according to Fastmarkets analysts.

Around 20% of European aluminium supply comes from the Middle East.

Fastmarkets understands from market sources that Bahrain’s Alba was operating at around 50% capacity as of late April. Emirates Global Aluminium (EGA) also declared force majeure on some contracts on March 28.

Global aluminium producer Hydro, which holds a 50% stake in Qatari smelter Qatalum, reported the facility is operating at around 60% capacity due to energy shortages on March 12.

South 32’s Mozal smelter in Mozambique was also placed on care and maintenance due to high energy costs on March 16 and has since reported reduced output in its latest results.

“We have never had this little metal before. There is just not the pipeline of unusual tonnes that you would expect to see,” a second trader source said.

Higher prices, weaker demand

Rising energy costs and reduced production have put further pressure on European aluminium premiums.

Aluminium billet premiums have doubled since the beginning of the conflict, reaching 2022 levels.

Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp North Germany (Ruhr region) at $1,175-1,250 per tonne on Friday May 29, up from $560-600 per tonne on February 27.

Market participants reported, however, that sentiment has shifted in recent weeks, driven by caution and deepening backwardation in aluminium markets.

“The market is effectively pricing a short-term scarcity premium, even as broader fundamentals remain largely understood and priced further along the curve,” said Farida.

At the time of writing, the cash-to-three-month spread was most recently at a $97-per-tonne backwardation, up from a $73-per-tonne backwardation on May 26.

“The backwardation is a bearish element; it will push some suppliers, particularly traders, to release volumes into the market,” said a third trader source.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $565-605 per tonne on Friday May 29, up from $360-390 per tonne on February 27.

Market participants report weaker demand, with some already seeing it in the market.

“The longer the energy crisis lasts, the greater the impact on demand as manufacturing and consumers have to absorb the higher fuel and metal prices and interest rates,” said Fastmarkets analyst James Moore.

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