Why I Remained Bullish LME Aluminium

Executive Summary#

Original Thesis and Update#

The November 2025 recommendation targeted $2,950–3,050 and had already worked by early February. A new long required more than repeating the same narrative.

The update argued that the market had not merely completed a cyclical rebound. It was beginning to recognise a supply system with limited spare capacity:

• China was operating close to its administrative ceiling.
• LME inventories remained low.
• Western smelter restarts were slow and power-sensitive.
• Copper near elevated levels encouraged substitution in selected applications.
• European carbon policy altered regional premiums and trade flows.

Positioning#

What Changed#

1. The First Target Had Been Reached Without a Large Inventory Rebuild#

The original thesis expected tight visible stocks to support a move through $3,000. By February, the price had risen while the presentation still recorded LME inventories near 495,000 tonnes.

This suggested that the move had not yet triggered a major supply response. The market could therefore remain sensitive to additional disruption.

2. China’s Ceiling Looked More Binding#

China’s role as swing producer had diminished as annualised output approached the approximately 45 million-tonne ceiling.

The original work treated the ceiling as fixed. In reality, policy implementation, capacity swaps and exemptions could alter effective output. The thesis was that marginal flexibility had narrowed, not that production could never exceed a precise number.

3. Smelter Supply Was Power-Constrained#

Primary aluminium requires continuous electricity. Potlines are costly to stop and slow to restart, making the industry vulnerable to power shortages and contract disputes.

The presentation’s claim that AI data centres had replaced inventory as the primary price setter was too sweeping. The defensible point was that competition for reliable power and higher electricity costs made Western restarts less elastic.

4. Substitution Added Incremental Demand#

High copper prices can encourage aluminium use in transmission and selected electrical applications. The original estimate of 800,000–850,000 tonnes of additional 2026 demand was not independently verified and has been removed.

Substitution was best treated as an incremental tailwind, not the central balance assumption.

5. Carbon Policy Changed Regional Economics#

The European Union’s Carbon Border Adjustment Mechanism increased the importance of embedded emissions and could support premiums for lower-carbon aluminium. It did not mechanically remove standard LME-grade metal from the market, but it could reshape trade flows and regional value.

Catalysts#

Principal Risks#

Outcome and Reflection#

The target range was reached within the stated horizon. Reuters reported LME aluminium near $3,670/t on 27 May 2026, after the Gulf region suffered severe production and shipping disruption. The International Aluminium Institute estimated that Gulf producers had supplied about 6.5 million tonnes in 2025, or 9% of global production, while accounting for a larger share of US and EU imports.

On 17 July, the LME official three-month aluminium bid and offer were $3,110 and $3,112/t, respectively.

Research Methodology#

The entry, target, inventory and invalidation conditions come from the 5 February 2026 Queen’s Tower Capital presentation. Subsequent aluminium prices and Gulf production context were checked against Reuters, the International Aluminium Institute and the London Metal Exchange.

Sources#

• London Metal Exchange — LME Aluminium
• International Aluminium Institute — Gulf Supply Disruption
• Reuters — Canada Redirects Aluminium as Prices Rise
• European Commission — Carbon Border Adjustment Mechanism