Over the past few decades, the global aluminum market has been dominated by oversupply, low prices, and large inventories. This was largely driven by China’s massive expansion of primary aluminum capacity and its export of semi-finished products. However, the market is now at a turning point: a structural deficit is emerging, which Citigroup believes is the largest in “the last 20 years or so.”
“We are witnessing a shift from a state of almost perpetual surplus to an era where supply can no longer be easily expanded,” said Citi’s commodity analyst, Wenyu Yao.
1. The Causes of Market Scarcity
China’s Capacity Cap: According to Reuters and Metal, in 2024, China produced approximately 43 million tons of primary aluminum, accounting for about 60% of the world’s total output. The Chinese government has set a capacity ceiling of 45 million tons per year, and the country’s output was already very close to this limit, reaching 44-45 million tons in early 2025. China’s unwillingness to raise this production cap signals that the era of easy capacity expansion has ended.
Decreased Semi-Finished Product Exports & Increased Raw Material Imports: China’s exports of semi-finished products dropped by about 9% in the first seven months of the year compared to the same period previously, due to a stronger shift towards domestic demand. At the same time, China increased its imports of primary aluminum from Russia and other external sources.
Declining Inventory, Especially at the LME: Aluminum stocks in certified LME warehouses (available stocks) have now fallen to about 700,000 tons. This figure is significantly lower than the over 1 million tons from the previous year and about 3 million tons from a few years ago. Recent inventory additions have been mainly “off-warrant,” meaning the goods have moved within the system but do not necessarily increase actual market liquidity.
Supply Challenges Outside of China: Aluminum smelters outside of China are struggling with high energy costs, power contract conditions, and environmental expenses. For example, the South32 Group has warned that without a suitable power contract, it might have to close some of its plants in Mozambique.
Indonesia is seen as a location with significant expansion potential, with paper plans for up to ~7 million tons of new capacity by 2030. However, Citi estimates that the actual feasible figure might only be around 2.3 million tons due to energy limitations and production efficiency.
Rapidly Increasing Demand from Energy Transition Sectors: Aluminum demand is being fueled by the expansion of electric vehicles, renewable energy (solar panels, wind power), and modern infrastructure applications. Experts believe these sectors will continue to be a key driver in the coming decade.
2. Price Forecasts & Market Scenarios
According to Citi, to incentivize new primary aluminum production and close the supply-demand gap, the global aluminum price needs to exceed ~US$3,000/ton. Otherwise, the market could move toward a “demand destruction” scenario, where prices are so high that some demand is priced out of the market.
Some analysts suggest that if new capacity projects in Indonesia, Guinea, or new renewable energy sources are implemented effectively, they could ease the pressure. However, if not, prices could reach US$4,000/ton in the long term.
3. Expert Assessments
Experts in the metals and energy industries suggest that energy prices—especially for electricity—are one of the most decisive factors in the feasibility of new aluminum production expansion. If electricity costs remain high or supply is unstable, it will take a long time for smelters to become financially viable.
Trade policy economists emphasize that import barriers (tariffs, export restrictions, embargoes) and sanctions (e.g., on Russian aluminum) are disrupting traditional trade flows, pushing aluminum toward China and reducing liquidity in LME warehouses.
Environmental and renewable energy experts point out that China’s shift toward cleaner aluminum production using hydroelectric or other renewable energy sources could increase production costs, but at the same time, it aligns with the low-carbon aluminum trend, which may command a premium in the international market.
4. Key Risks to Note
The aluminum market is genuinely entering a phase where long-standing surplus is no longer the norm. A shortage of supply, particularly of high-quality, tradable primary supply, is becoming a more likely scenario. If all favorable factors align (cheaper energy, stable policies, new investments approved and implemented on time), aluminum prices could stay above US3,000/tonandpotentiallyheadtowardUS4,000/ton if the shortage worsens.
However, there are several risks:
- Global Economic Downturn: If interest rates rise or a recession occurs, demand from the construction, automotive, and manufacturing sectors could fall sharply, reducing price pressure.
- Policy and Environmental Risks: Environmental regulations, carbon taxes, and energy stability will affect aluminum production costs. Countries that rely on hydropower may face difficulties during the dry season.
- Risks to Upstream Supply Chains (Bauxite, Alumina, Logistics): If imports of alumina or bauxite are disrupted, the price of these intermediate materials could rise, increasing the input costs for aluminum.
- Impact from the Recycling Market: Scrap aluminum can partially offset the primary supply shortage if recycling systems are enhanced, but this requires prices to be high enough and policies to be in place to encourage it.
According to: vietnambusinessinsider, metal, reuters and collected from the internet.
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