What it actually is
Aluminium is the third most abundant element in the Earth's crust, so the ore has never been the constraint. The constraint is energy: smelting alumina into metal by the Hall-Héroult process consumes roughly 13–15 megawatt-hours per tonne. A large smelter is effectively a small city's worth of continuous electricity demand.
This makes aluminium a derivative of power prices. When European energy costs spiked in 2022, smelters across the continent curtailed or closed — not because nobody wanted aluminium, but because selling the electricity was worth more than converting it into metal.
The premium system
The LME price is for metal in an approved warehouse. Actual buyers need it in a specific place and often in a specific form — billet, slab, foundry alloy. They pay the LME price plus a regional physical premium that trades separately and can move independently. Anyone hedging aluminium purely on the LME price is leaving that premium exposed, which has caught out plenty of manufacturers.
Recycling
Recycling aluminium uses about 5% of the energy of primary production, and secondary metal is a large and growing share of supply. Scrap flows respond quickly to price, which puts a soft ceiling on rallies.
How you would actually trade it
Genuine aluminium exposure is an institutional business — LME membership, or a broker relationship with margin requirements. Retail participants use industrial metal ETCs, broad commodity index funds, or equity in producers like Rio Tinto, Alcoa or Norsk Hydro.
What goes wrong
- Power price shocks can shut supply almost overnight, and restarting a cold smelter is expensive and slow.
- Sanctions risk. A substantial share of global supply sits in Russia; sanctions decisions have repeatedly dislocated this market.
- Warehouse distortions. LME stock and queue mechanics have been the subject of regulatory investigation and can decouple headline prices from physical availability.
This entry describes how a market works. It is not a recommendation, a price forecast, or advice about whether this belongs anywhere near your money. How entries are written.