Global aluminium prices are being driven higher by a rare squeeze on supply, rising demand and US President Donald Trump's tariffs, with analysts predicting the situation will get worse in the coming months.

Regional US prices have been on a tear this year as the result of Trump imposing a 50 per cent import levy on the metal, which is used in industries such as cars and packaging. The so-called Midwest premium -- the premium above the London price for US delivery -- has jumped 177 per cent and is hovering around its highest level in over a decade at more than 70 cents per pound.

The London Metal Exchange price, the global benchmark, has also climbed by about 17 per cent since its April low following Trump's sweeping range of "liberation day" tariffs.

Analysts warn a lack of supply, caused by production curbs in China and limited smelting capacity elsewhere in the world, combined with rising global demand, could mean prices have further to rise. Aluminium stocks in the LME network of warehouses in Europe and North America have fallen close to all-time lows, while those in the Shanghai Futures Exchange's facilities have fallen by about half since the start of April.

"Due to continued demand from China's stimulus measures combined with limited production, we anticipate an increase in aluminium prices by the end of the year," said Thomas Strobel, an investment strategist at UniCredit.

"Rising US imports and low inventories worldwide could lead to a bottleneck," he added.

Bank of America analysts expect a surplus of aluminium this year to flip to become a deficit in 2026. That could drive prices to $3,000 per tonne by the end of 2026, they forecast, from just over $2,700 currently.

In the US, "Midwest premiums have repriced due to the US tariffs and not because of any demand pick up", said Alastair Munro, senior metals strategist at broker Marex. "European premiums have picked up because of the shift in geographical flows and resultant supply shortages."

Market tightness has been exacerbated by Chinese caps -- established in 2017 to address industrial overcapacity -- on the country's total annual aluminium production at 45mn tonnes.

As it runs up against its self-imposed production cap, the country was set to become a net importer of the metal, said Rachel Zhang, head of China materials research at Morgan Stanley.

"This is a historically oversupplied industry, but we're entering a deficit," she said.

Skyrocketing energy prices in Europe following Russia's full-scale invasion of Ukraine in 2022 prompted a number of aluminium smelters to close, while production in countries including Indonesia and India has been slow to come online.

"This Chinese production cap has materially changed the market," said David Wilson, a director of commodities strategy at BNP Paribas. "It's the first time in 20 years the market has had to think 'where is the next supply coming from?'"

Near-term market tightness may also have been exacerbated by some traders taking very large positions. At present, one market participant holds more than 90 per cent of the aluminium available in the LME warehouse network, according to the group's data.

The quantity stored in that global network is currently about half of what it was a year ago. As at the end of August, about half of the metal being stored is of Russian origin, according to the latest LME data. Some buyers have sought to avoid the country's commodities exports since its invasion of Ukraine, but analysts say it is helping meet Chinese demand for the metal.

"Russian aluminium is increasingly finding a new home in China," said Neil Welsh, head of metals at Britannia Global Markets.

According to Yasemin Esmen, from price reporting agency Fastmarkets, the Midwest premium in the US could rise further when businesses and traders resume higher levels of activity after the seasonal summer lull, given the limited onshore stocks.

Thanks to the new US import levies, metal from Canada -- the US's biggest source of refined aluminium -- is increasingly being diverted away from its southern neighbour, according to Fastmarkets.

However, scrap aluminium, which is not subject to Trump's tariffs, is being sold into the US as a way of getting round import levies.

Aluminium scrap from "all across the world" was also being "diverted into the US and remelted here", said Esmen.

Aluminium prices driven higher by global supply squeeze