COMMODITIES 2025: Geopolitics, supply challenges shape EU P1020 aluminum outlook

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

The European P1020 aluminum market faces an uncertain 2025, with premiums susceptible to geopolitical developments, supply-side constraints and persistently weak demand.

Platts, part of S&P Global Commodity Insights, assessed the European duty-paid P1020 premium over London Metal Exchange cash at $350-$375/mt IW Rotterdam on Jan. 9, reflecting a 49% increase year over year at the midpoint. The duty-unpaid premium was assessed at $300-$320/mt IW Rotterdam, showing a 75% increase year over year.

At the beginning of 2024, freight costs posed a significant barrier for metal trying to reach Europe. Beginning in late 2023, following Houthi attacks on ships in the Red Sea, shipments were forced to reroute via the Cape of Good Hope, away from the Suez Canal, increasing both transit time and freight costs, sources said.

This significantly increased risk for market participants looking to import metal into Europe, reducing trade flows and thus available supply. In addition, bullish price dynamics within the Asian market added further upward pressure to the Rotterdam premiums, with the European market struggling to remain competitive and attract units across.

European premiums struggle to attract overseas metal

Even with 2024's price uptrends, market participants believe P1020 Rotterdam premiums remain too low to incentivize the much-needed flows of metal from Asia, failing to compensate for the high logistical costs and rising Asia premiums. Several sources told Commodity Insights that they see supply continuing to dwindle if these trends persist, potentially driving premiums higher.

The Quarterly Japan Premium (QMJP) is expected to keep strong in Q1, with European market participants anticipating settlement above the previous quarter's level of $175/mt CIF. This would represent a significant jump from Q1 2024 levels, where the premium closed at $90/mt CIF.

Initial Q1 MJP deals were reported at $228/mt and $233/mt CIF MJP for Q1 loading; however, the former was identified as a value-added product (VAP)-linked deal.

"The European duty-unpaid premium is not attractive," an Asia-based producer said. "We are seeing container freight to Europe going up, and in the new year, the duty-unpaid premium should go up. We are selling above MJP in Asia, and we are seeing Q1 high everywhere in Asia."

The Platts Container Rate 1 -- North Asia to North Continent -- was assessed at $4,200/mt FEU on Jan. 9. This marks a softening from $6,000/mt FEU year over year, yet it is a sharp 270% rise from November 2023's average, just prior to the Red Sea Crisis taking full effect.

If there is an economic recovery in Europe, there will be a P1020 supply squeeze due to low inventories, the producer added.

A second Asia-based producer said that a premium upwards of $325/mt Duty Unpaid CIF Rotterdam was required to incentivize shipment to Europe.

Although current container freights remain exceptionally high, shipping association BIMCO sees a weakening to pre-pandemic levels if Red Sea tensions recede, amid ship oversupply and large newbuild deliveries in 2025-2026.

Market participants are also monitoring the longer-term impacts of China's decision to end a 13% export tax rebate on aluminum, which came into effect Dec. 1, 2024. The new policy extends to about 24 aluminum products and could have bullish implications.

"If trade flows change quickly where Chinese semi-finished products stop going to [other markets in] Asia and you get an uptick in P1020 Asia demand, which people think will happen quick, then Asia premiums pick up," a trader said.

Further complicating European supply is the uncertainty surrounding South32's Mozal smelter in Mozambique, which has had operations disrupted amid civil unrest in the region. While exports from the facility continue, South32 has reduced amperage to the potlines and is considering curtailment if the situation does not resolve.

Market participants are proceeding cautiously; some suggest that owners of Mozal units may hesitate to sell due to replacement concerns, while others warn that reduced output from the smelter could heighten European supply issues.

Tariff threats cloud outlooks

As US President-elect Donald Trump prepares to take office on Jan. 20, the European aluminum market is closely monitoring the impact of his proposed 25% tariff on Canadian aluminum imports, which he announced in November last year.

"If there are tariffs [by the US] on Canadian aluminum, then Canadian [material] will come to Europe which should put pressure on [European] premiums because demand is on the lower side," a consumer said.

However, some market participants believe that the introduction of tariffs is unlikely, given the US's heavy reliance on Canadian aluminum. Data from the US Department of Commerce showed that Canada accounted for 85% of US aluminum P1020 imports during January-November 2024, or 1.583 million mt.

Without tariffs, and if all other bullish supply-side arguments hold, the first Asia-based producer sees European premiums climbing to at least $350/mt Duty Unpaid IW Rotterdam.

Trump's vow to end the Russia-Ukraine war adds another layer of complexity to the market outlook.

The ongoing conflict has prompted widespread self-sanctioning of Russian aluminum in Europe, reducing duty unpaid supply and somewhat lending support to premiums in the absence of demand. Should the war end under the new US administration, sources suggest that the potential reintroduction of Russian metal into European markets could help alleviate supply constraints and ease pressure on premiums.

"I see a continuing shortage of duty unpaid, unless the Ukraine-Russia war is solved with the new [US] administration and then Russian material flows in," a second trader said.

"With no real demand, the geopolitical situation is supporting premiums. The absence of Russian aluminum creates a duty unpaid [supply] gap, and the Red Sea closure limits timely deliveries," a third trader said. "If conditions persist, I'm bullish, but I am optimistic they will improve. That can crash premiums initially, but then they will stabilize."

Demand challenges to continue

The outlook for aluminum demand in 2025 remains subdued, with key downstream sectors facing ongoing challenges.

"Automotive demand is still weak and there is no indication when this will change, while aerospace is deteriorating," a second consumer said. "Building and construction is unchanged, and still in a wait-and-see mode."

Players are also eyeing developments in the downstream market, where secondary producers -- and consumers of P1020 -- have been cutting capacities to cope with strained margins amid elevated scrap and ingot input costs.

"We expect weakening demand in January-February, especially from billet producers, who will buy less P1020 because it will be more convenient for them to buy billets than to produce," another trader said. "In Q1, I think P1020 premiums will be capped because billet premiums will find a floor due to production cuts."

Despite ongoing demand challenges, some market participants emphasize that supply-side factors will play a greater role in shaping the European primary aluminum market in 2025.