Aluminium Market Divergence: A Sectoral Re-Rating in Construction and Automotive

The U.S. Commodity Futures Trading Commission's (CFTC) latest Commitments of Traders (COT) report for aluminium futures has unveiled a striking bifurcation in speculative positioning between construction-linked and automotive-grade aluminium markets. This divergence, rooted in structural supply constraints and sector-specific demand dynamics, offers a roadmap for investors to identify asymmetric risks and opportunities in the industrial complex.

Construction-Linked Aluminium: A Structural Bull Case

The Aluminium Midwest Premium (MWP) futures contract (Code 191693), a benchmark for construction-linked aluminium, holds a speculative net long position of 1,054 contracts as of December 2025. This positioning is underpinned by robust commercial hedging activity, with 84.1% of long positions held by producers and end-users, signaling institutional confidence in the sector. The MWP price of $1,323/MT has historically correlated with a 12–15% outperformance in construction equities within three months, as seen in firms like Kaiser Aluminum (KALU) and Vulcan Materials (VLC).

The bullish case for construction-linked aluminium is reinforced by U.S. Section 232 tariffs on aluminium imports, Chinese production caps, and infrastructure spending under the One Big Beautiful Bill Act (OBBBA). While direct OBBBA allocations to aluminium projects remain unspecified, the act's tax incentives—including 100% bonus depreciation and expanded Section 179 expensing—have indirectly spurred demand for aluminium-intensive infrastructure. For example, VLC's EBITDA margins expanded by 8% in 2024, reflecting the sector's ability to pass through rising input costs to clients.

Automotive-Grade Aluminium: A Bearish Outlook

In contrast, the Aluminium Euro Prem Duty-Paid (Code 191696) contract, representing automotive-grade aluminium, has a speculative net short position of -2,315 contracts. This bearish positioning reflects automakers' vulnerability to un-hedged aluminium costs and margin compression. Tesla (TSLA) exemplifies this risk: its EBITDA margins have fallen from 14% in 2023 to 6% in Q2 2025, directly tied to rising aluminium prices and weak demand. Unlike construction-linked firms, automakers lack pricing power to offset input cost increases, especially in a softening market.

The CFTC data highlights a sectoral re-rating, with capital shifting toward infrastructure builders and away from un-hedged automotive producers. Ford (F) has mitigated some risks via a $1.2 billion long-term aluminium supply agreement, but Tesla's reliance on spot markets leaves it exposed.

Strategic Implications for Investors

The CFTC's positioning data serves as a leading indicator for equity performance and sectoral reallocation. Key investment implications include:
1. Overweight construction-linked equities: Firms like KALU and VLC benefit from policy-driven demand and supply constraints.
2. Underweight unhedged automotive stocks: Tesla and others face margin erosion due to un-hedged exposure.
3. Diversify into packaging firms: Companies like Ball Corp (BLL) and WestRock (WRK) leverage recycling buffers and deflationary trends in certain segments.

Trade policy remains a wildcard. U.S. tariffs and Canadian retaliatory measures have driven Midwest premiums to record highs, exacerbating margin pressures for automakers while bolstering construction-linked firms. The tightening cost-of-carry environment further amplifies the importance of weekly positioning monitoring, as shifts in speculative sentiment can act as early signals for equity performance.

Conclusion

The aluminium market's bifurcation underscores the need for sector-specific positioning. Construction-linked aluminium is in a structural bull case, supported by policy tailwinds and supply constraints. Conversely, automotive-grade aluminium faces a bearish trajectory due to un-hedged costs and weak demand. Investors must align portfolios with these divergent trajectories, leveraging CFTC data to identify asymmetric risks and opportunities. As the market evolves, the interplay of trade policy, supply constraints, and sectoral demand dynamics will remain pivotal in shaping industrial equities.