Aluminium Speculative Positions Signal Sector Rotation Risks and Opportunities

The Commodity Futures Trading Commission's (CFTC) Commitments of Traders (COT) reports for aluminium futures in Q4 2025 reveal a stark divergence in speculative positioning between the construction and automotive sectors. This divergence, driven by structural supply constraints and sector-specific demand dynamics, offers critical insights for investors navigating a tightening cost-of-carry environment. By dissecting the CFTC data, we uncover actionable signals for sector rotation and risk mitigation.

Construction-Linked Aluminium: A Bullish Case for Infrastructure

The Aluminum Midwest Premium (MWP) futures contract (Code 191693) has a speculative net long of 1,054 contracts, with commercial traders controlling 84.1% of long positions. This reflects robust demand from producers and end-users hedging against supply-side pressures. The MWP price of $1,323/MT is underpinned by U.S. Section 232 tariffs and Chinese production caps, creating a structural shortage in construction-grade aluminium.

Historically, speculative net longs in the MWP contract have correlated with a 12–15% outperformance in construction-linked equities within three months. This aligns with the One Big Beautiful Bill Act (OBBBA), which has driven record nonresidential construction spending. Firms like Kaiser Aluminum (KALU) and Vulcan Materials (VLC) benefit from cost pass-through, with VLC's EBITDA margins expanding by 8% in 2024.

Automotive-Grade Aluminium: A Bearish Outlook for Margins

In contrast, the Aluminium Euro Prem Duty-Paid (Code 191696) contract shows a speculative net short of 2,315 contracts, with non-commercial short positions surging by 1,490 contracts. This bearish positioning reflects automakers' vulnerability to un-hedged aluminium costs. Tesla (TSLA), for instance, has seen EBITDA margins decline from 14% in 2023 to 6% in Q2 2025, directly linked to aluminium inflation. Unlike construction firms, automakers lack pricing power to offset rising input costs in a weak demand environment.

Ford (F) has mitigated some risk via a $1.2 billion long-term aluminium supply agreement, but Tesla's reliance on spot markets leaves it exposed. The COT data suggests a sectoral re-rating is underway, with capital shifting toward infrastructure builders and packaging firms.

Strategic Implications for Investors

The CFTC data underscores a bifurcation in the industrial economy:
1. Overweight Construction-Linked Firms: Investors should prioritize companies with infrastructure exposure and pricing power, such as KALU and VLC, to capitalize on OBBBA-driven demand.
2. Underweight Unhedged Automotive Stocks: Tesla and other automakers without hedging strategies face margin compression. Consider using aluminium futures options to hedge exposure.
3. Diversify with Packaging Firms: Companies like Ball Corp (BLL) and WestRock (WRK) offer a counterbalance, leveraging recycling buffers and deflationary price trends.

The COT reports also highlight the importance of weekly monitoring. For example, a 57% drop in speculative net longs in July 2025 coincided with a reacceleration in construction-linked equities, demonstrating the predictive power of positioning data.

Conclusion

In a tightening cost-of-carry environment, aluminium's dual role as a construction input and automotive component creates asymmetric risks and opportunities. By leveraging CFTC positioning data, investors can align portfolios with sectors poised to benefit from structural supply constraints and policy-driven demand. The key lies in tilting toward hedged, pricing-power-rich industries while hedging or underweighting vulnerable sectors.