In mid-June, the price of aluminum in Shanghai saw a strong rally. Among them, AL2506 rose rapidly before delivery, once approaching the 21,000 yuan per ton mark. The main reason for this is that the current social inventory of electrolytic aluminum has been continuously declining and is at a historical low, creating conditions for forced stockpiling. Looking ahead, as supply cannot increase and the proportion of aluminum ingots is small, while demand is steadily expanding, this will keep the social inventory of electrolytic aluminum at a low level for a long time, and aluminum prices may be more likely to rise than fall.
Supply: The upper limit of production capacity has been determined, and the proportion of aluminum ingots is low
In 2017, China's electrolytic aluminum industry carried out "supply-side reform", with the upper limit of production capacity set at 45 million tons. As of May 2025, the operating capacity of electrolytic aluminum in China was 44.139 million tons, which was very close to the capacity ceiling. This also means that the increase in electrolytic aluminum capacity is very limited, and the supply side will provide strong support for aluminum prices.
In the medium and long term, this upper limit of production capacity may be difficult to break through, so the supply of electrolytic aluminum will remain stable at around 45 million tons in the medium and long term.
In addition, in terms of form, the proportion of aluminum ingots is currently relatively small. According to SMM, China's electrolytic aluminum output in May was 3.729 million tons, up 2.7% year-on-year. Meanwhile, the proportion of aluminum water in China was 75.53%, which means that the proportion of aluminum ingots in China was 24.47%. As the delivery commodity of China's aluminum futures is aluminum ingots, the low proportion of aluminum ingots indicates that there are not many delivery commodities, creating conditions for low inventory.
From the supply side, China's policies have restricted the capacity ceiling of electrolytic aluminum, making it difficult for the supply of electrolytic aluminum to increase significantly. Currently, the supply of aluminum is mainly aluminum water, resulting in a low proportion of aluminum ingots as delivery products, which is beneficial to the aluminum price on the supply side.
Cost: The profit level per ton of aluminum is high, but the impact is limited
The raw materials for electrolytic aluminum mainly include alumina, pre-baked anodes, aluminum fluoride, etc. Alumina is the main raw material for the production of electrolytic aluminum, accounting for 42% of the production cost of alumina. As the alumina industry has not implemented capacity restrictions, the current alumina production capacity can still be expanded. According to Aladdin, in May, China's total capacity of alumina was 112.42 million tons, with an in-production capacity of 89.5 million tons and an operating rate of 79.61%. Due to the general increase in non-ferrous metal prices, the futures price of alumina has performed moderately well recently, showing a slight strengthening. As of June 27th, the main consecutive closing price of alumina futures was 2,986 yuan per ton. However, under the influence of the fundamental situation of oversupply, the upward space for alumina prices is expected to be relatively limited.
In addition, electricity cost is an important component of the production cost of electrolytic aluminum. It accounts for 31% of the cost of electrolytic aluminum. At present, Yunnan has entered the flood season, and the local hydropower prices have dropped. Meanwhile, in Xinjiang, due to its abundant resources every day, the thermal power prices are currently at a low level. As of June 30th, the electricity price for industrial and commercial use in Yunnan region has dropped to 0.39 yuan per kilowatt-hour, the lowest level of the year. Due to the abundant coal resources in Xinjiang region, thermal power is used, and the electricity price for industrial and commercial use is also 0.40 yuan per kilowatt-hour. At present, the electricity prices in Yunnan and Xinjiang regions are relatively low.
According to estimates, as of June 29th, the production cost of electrolytic aluminum was 17,250.95 yuan per ton, and the profit was 3,419.05 yuan per ton. The current profit level of the electrolytic aluminum industry is very considerable, but it is difficult to stimulate electrolytic aluminum enterprises to expand production capacity. This is because the upper limit of electrolytic aluminum production capacity has been set. If one area wants to add new capacity, another area needs to close an equivalent amount of capacity. This has led to electrolytic aluminum enterprises being unable to release production capacity at will just because of considerable profits. Therefore, due to the existence of the ceiling policy on electrolytic aluminum production capacity, the substantial profit per ton of aluminum has a limited negative impact on aluminum prices.
Demand: The real estate performance was average, but the new energy industry made up for it
The demand for electrolytic aluminum is mainly concentrated in three sectors: construction (30%), transportation (20%), and power (16%). As for the construction sector, the real estate market still needs time to recover at present. According to the data, from January to May, the sales area of newly built commercial housing was 353.15 million square meters, a year-on-year decrease of 2.9%. The completed floor area of buildings was 183.85 million square meters, a decrease of 17.3%, among which the completed floor area of residential buildings was 133.37 million square meters, a decrease of 17.6%. Although the state has successively introduced policies to boost the real estate industry since 2022, due to the influence of factors such as the epidemic and economic cycles, residents have always been cautious about buying houses.
In the transportation sector, the "trade-in for new" policy for automobiles has been continued this year, which has led to a good performance of the automotive market. From January to May 2025, the production and sales of automobiles reached 12.826 million and 12.748 million units respectively, increasing by 12.7% and 10.9% year-on-year. It is worth noting that due to the pursuit of lightweight, new energy vehicles widely use aluminum alloys to produce components. The aluminum consumption of a new energy vehicle can reach 220 to 300 kilograms, which is significantly higher than that of a fuel vehicle, which is 150 to 200 kilograms. According to the data, from January to May 2025, the production and sales of new energy vehicles in China grew rapidly, reaching 5.699 million and 5.608 million units respectively, increasing by 45.2% and 44% year-on-year. The sales of new energy vehicles accounted for 44% of the total sales of new vehicles. In addition, the frames and brackets of photovoltaic cells need to be made of aluminum alloy. According to SMM, the domestic photovoltaic module output in China was 49.93GW in May, remaining at a relatively high level. The vigorous development of the photovoltaic industry has also driven up the demand for electrolytic aluminum.
From the demand side, the vigorous development of the new energy vehicle and photovoltaic industries has effectively compensated for the negative impact of the sluggish real estate market on the consumption of electrolytic aluminum. In addition, the application scenarios of electrolytic aluminum are also continuously increasing. Industries such as energy storage, robotics, low-altitude economy, smart phones, and winter sports equipment all use aluminum as raw materials for production. Therefore, in the medium and long term, electrolytic aluminum will show a trend where supply remains stable while demand continues to increase.
Inventory: Low level or regular. Pay attention to the possibility of forced liquidation
In terms of social inventory, as of June 26th, the social inventory of electrolytic aluminum in the five regions as calculated by SMM was 461,000 tons. The inventory for the same period last year was 764,000 tons. The current inventory is at the lowest level in the same period of five years. Due to the relatively small proportion of aluminum ingots at present and the effective boost in the demand for electrolytic aluminum from the new energy industry, the social inventory of electrolytic aluminum has been smoothly reduced this year. In June this year, a margin call occurred in the AL2506 contract, causing the price difference between the near and far months to widen. In the future, low inventory of electrolytic aluminum may become the norm. It is recommended to pay attention to the possibility of forced liquidation brought about by this.
To sum up, the supply side provides relatively obvious support for electrolytic aluminum, mainly reflected in the fact that the upper limit of electrolytic aluminum production capacity cannot be exceeded and the current proportion of aluminum ingots is relatively low. On the demand side, even though the largest downstream consumption sector of electrolytic aluminum performed poorly, the vigorous development of new quality production forces such as new energy vehicles and photovoltaic cells still drove the consumption of electrolytic aluminum. Under the combined effect of all these factors, the social inventory of electrolytic aluminum is likely to remain at a relatively low level, making the aluminum price more likely to rise than fall. In the short term, it is recommended to pay attention to whether the main contract AL2508 can break through 21,000.
