China's electrolytic aluminum has established a leading edge of 1,500 to 2,500 kilowatt-hours per ton in terms of equipment energy efficiency. Compared with Europe, its total cost is 700 to 1,400 US dollars per ton lower, and compared with the United States, it is 100 to 600 US dollars per ton lower. The cost disadvantage of Europe and the United States is not cyclical but is a structural disadvantage caused by the interaction of the power market structure, carbon pricing mechanism, and the disconnect between industrial capital. This disadvantage is difficult to reverse in the short term.
The global distribution pattern of electrolytic aluminum production capacity is essentially the result of the long-term interaction of three variables: the power system, carbon constraints, and capital investment. It is not a short-term reflection of a single cost difference. This article conducts qualitative and quantitative comparisons between the existing and newly-built electrolytic aluminum production capacity in Europe and the United States and the Chinese projects from three dimensions: production process, industrial background, and cost structure.
Production process: Generation gap of equipment based on the same principle
The global electrolytic aluminum production still uniformly adopts the Hall-Erlich process, namely the cryolite-alumina molten salt electrolysis method. At a temperature range of 950°C to 970°C, with carbon electrodes as the anode and aluminum liquid as the cathode, electrochemical reduction is carried out. There is no divergence in the process route between China and other countries. The differences lie in the current intensity of the electrolytic cell, the design of the magnetic field, the control of energy balance and the level of automation, that is, the differences in equipment generations.
The equipment upgrade in China was not a result of market spontaneity, but was driven by the mandatory capacity replacement system. After the "cap" for electrolytic aluminum production was set in 2017, new production capacity could only obtain indicators through equal or reduced replacement. And the replacement projects generally required advanced slot designs. The "Aluminum Industry High-Quality Development Implementation Plan (2025-2027)" released in 2025 clearly stipulated that the AC power consumption of the new replacement projects for aluminum liquid should not exceed 13,000 kilowatt-hours per ton.
By the end of 2025, the production capacity of large-scale pre-baked cells with a capacity of 500kA and above in China will account for more than 85%; the production capacity of the independently developed 600kA super-large cells will account for approximately 10.4%. Leading enterprises such as Chinalco and Weiqiao have completed the transformation of multiple 600kA production lines, and some enterprises have carried out technical pilot projects for 700kA. The current efficiency of the advanced cell type has been increased to over 95%, and the direct current consumption of electrolytic aluminum has been reduced to below 12,500 kilowatt-hours per ton, with energy consumption decreasing by approximately 300 kilowatt-hours per ton compared to the end of the "13th Five-Year Plan".
Most of the existing electrolytic aluminum plants in Europe and America were built during the 1970s to 1990s, with 180-300kA pre-baked cells as the main equipment. Some of the old plants still retain the characteristics of the self-baking process. It is worth noting that the single investment of modern electrolytic aluminum plants ranges from 1 billion to 2 billion US dollars, and the depreciation period is 20 to 30 years. When the plants are in a state of slight profit or even loss for a long time, although they can cover the variable costs in the short term, they cannot support the capital investment required for technological renovation. This forms a negative cycle of "low profit - no investment - lower efficiency - lower profit".
The difference in electricity consumption between European and Chinese electrolytic aluminum plants ranges from 1,500 to 2,500 kilowatt-hours per ton. At the industrial electricity price of 90 euros per megawatt-hour in Europe, this directly corresponds to a cost difference of 155 to 265 US dollars per ton. This is only a part contributed by the technical differences, and it does not include the gap in electricity prices themselves.
Industry Background: Comparison of Chinese and Foreign Alumina Projects
In China, according to statistics from Shanghai Metals Market, as of June 2026, the total electrolytic aluminum production capacity in China was approximately 46.28 million tons per year, an increase of 80,000 tons per year compared to the end of the previous year. The operating capacity rose to 45.55 million tons per year, exceeding the policy "ceiling" of 45 million tons per year. Future project growth is extremely limited under policy constraints. Under such constraints, Chinese aluminum enterprises have shifted their project expansion to overseas locations, with a high concentration in Indonesia and Vietnam.
According to the announcement of Nan Shan Aluminum Industry, the investment intensity of the Nan Shan Aluminum Industry's Bintan project in Indonesia is approximately 1.22 thousand yuan per ton (about 1,800 US dollars per ton), which can serve as a benchmark reference for Chinese-funded overseas greenfield projects.
In the United States, currently there are only 4 operating primary aluminum plants, with an annual production capacity ranging from 700,000 to 900,000 tons. Approximately 85% of the aluminum supply relies on imports. The status of the existing projects is highly differentiated. Among them, Century Aluminum's Mount Holly plant, relying on an electricity agreement with Santee Cooper extended until 2031, invested 50 million US dollars to restore over 50,000 tons of idle capacity and reached full production in June 2026; the Hawesville plant is still in a shutdown state due to the impact of electricity costs; the Warrick plant of American Aluminum is partially operational, and the Massena West plant relies on hydropower but faces grid pressure.
The only future expansion project is one. In January 2026, Emirates Global Aluminium and Century Aluminium signed a joint development agreement to build a 750,000-ton per annum primary aluminium plant in Inola, Oklahoma (Emirates Global Aluminium holds 60% of the shares, and Century Aluminium holds 40%). The project adopts Emirates Global Aluminium's latest EX smelting technology and has an increased scale compared to the previous plan. After production, it will increase the US primary aluminium output by approximately double. The project is scheduled to start construction by the end of 2026, is expected to be completed in 2029-2030, and will receive financial support from the US Department of Energy.
By comparing the construction period and investment intensity of the projects in China and the United States, it can be seen that the domestic replacement projects in China typically require 18 to 24 months from commencement to power supply, with an investment intensity of 10,000 to 13,000 yuan per ton. The Inola project, from signing the contract to commissioning, is planned to take over four years. The total investment is estimated at 4 billion to 6 billion US dollars, with an investment intensity of 5,300 to 8,000 US dollars per ton. After conversion through exchange rates, it is 3 to 4 times that of the Chinese projects. The differences arise from the environmental impact assessment and licensing cycle, labor costs, the absence of local supply chains, and the complexity of the power negotiation. Among them, the power negotiation is the core factor determining the successful implementation of the project. Currently, the Inola project is in discussions with Oklahoma and others regarding long-term electricity prices, and there is considerable uncertainty.
In Europe, since 2022, approximately 50% of the electrolytic aluminum production capacity of the European Union has been shut down or its production load has been reduced. Currently, about 800,000 tons per year of production capacity is idle. Dutch company Aldel (which ceased production in 2021), Montenegro's KAP, and German Speira Rhine plant (which was shut down in 2023) all belong to long-term exits rather than temporary adjustments.
The limited resumption of production at the aluminum plant is mainly due to the difficulty in obtaining policy subsidies and long-term power contracts. The Slovak Slovalco aluminum plant under the control of Hydro plans to restart the first batch of its 7.5 million tons per year production capacity, with the restart scheduled for the fourth quarter of 2026. The investment is 100 million euros. The prerequisite for the restart includes the approval by the European Commission of Slovakia's updated indirect carbon cost compensation plan, among other conditions. Rio Tinto's greenfield project in Finland, Kokkola, also requires obtaining low-carbon electricity as a prerequisite. The restart of European production is no longer determined by aluminum prices, but by government subsidies and long-term power contracts together.
Cost variance: Focus on changes in electricity and carbon costs
From January to May in 2026, the average fully-taxed cost per tonne of China's electrolytic aluminum industry was approximately 16,177 yuan, and it was about 16,243 yuan in May, a year-on-year decrease of 2.3%. The aluminum price in May was approximately 24,300 yuan per tonne, and the theoretical industry profit was about 8,400 yuan per tonne, which was at a historical high. From the perspective of cost composition, alumina accounted for about 36%, electricity accounted for about 34%, and pre-baked anode accounted for about 16%, totaling about 86%. In terms of electricity, the comprehensive electricity price for China's electrolytic aluminum industry in May was 0.41 yuan per kilowatt-hour, excluding tax, it was approximately 53 US dollars per megawatt-hour; considering that some enterprises have locked in long-term contracts, the industrial electricity price in Europe is between 85 and 95 euros per megawatt-hour, equivalent to 97 to 108 US dollars per megawatt-hour; the industrial electricity price in the United States is between 35 and 65 US dollars per megawatt-hour.
After calculation, the cost gap between Chinese and European electrolytic aluminum ranges from 700 to 1400 US dollars per ton. Among them, electricity is the decisive factor, contributing 500 to 800 US dollars per ton; alumina, as a globally tradable commodity, has a limited price difference between China and Europe; the cost gap of pre-baked anodes is significant, due to China's dominant position in the global supply of commercial anodes.
From the perspective of electricity price sensitivity, a 1% increase in electricity prices would result in an impact of 7.1 US dollars per ton on the cost of electrolytic aluminum in China and 13.5 US dollars per ton in Europe. High electricity costs are the fundamental reason for the significant fluctuations in cash flow and the repeated decision-making on resumption of production at aluminum plants in Europe.
The cost gap between China and the United States in electrolytic aluminum production is significantly smaller than that between China and Europe. The problems of the existing aluminum plants in the United States do not lie in the electricity price itself. The electricity prices from hydropower and long-term contract plants remain competitive. The main issues are the aging equipment, small scale, and too low production capacity base.
Looking ahead, two factors are rewriting the long-term supply pattern.
One is electricity. Currently, electrolytic aluminum plants are unable to compete with AI data centers in the long-term electricity contract market. The industry generally believes that an economically viable electrolytic aluminum project requires a long-term contract price of approximately 40 US dollars per megawatt-hour over a period of 10 to 20 years; while the long-term contract price promised by technology companies for data centers is above 115 US dollars per megawatt-hour. This means that even if there is an incentive for aluminum prices to rise in Europe and the United States, it is difficult for them to obtain feasible contracts in the electricity market.
The second is carbon cost. The EU Carbon Border Adjustment Mechanism (CBAM) officially came into effect on January 1, 2026. In the first quarter of 2026, the certificate price was 75.36 euros per ton of carbon dioxide equivalent. Currently, only direct emissions are accounted for, and the EU's domestic free quota still retains 97.5%. The actual carbon cost for European aluminum plants in the current period is 20 to 50 US dollars per ton. The additional cost for aluminum exported from China to the EU is approximately 3%. It is expected that in 2028, indirect emissions from purchased electricity will be included. The carbon emission volume of thermal power aluminum in China is significantly higher than that of hydropower aluminum. Aluminum bases using hydropower will receive a structural premium. Aluminum plants with their own coal-fired power plants facing exports to Europe will face a carbon cost increase of over 100 euros per ton. After the free quota is zeroed out, the additional cost for Chinese aluminum exports to the EU may rise to 7% to 10%.
Conclusions and Implications
First, the cost advantage of China's electrolytic aluminum production is systematic rather than dependent on subsidies. This cost advantage is the result of multiple factors such as equipment energy efficiency, electricity costs, full industrial chain support, and construction speed, and it is difficult for Europe and the United States to replicate it in a short period of time.
Secondly, the main constraints in the European and American aluminum electrolysis industry lie in the interlocking effects of the electricity market structure, the carbon pricing mechanism, and the capital expenditure gap. The current policy countermeasures (such as the 50% tariff in the United States, Department of Energy funds, sovereign investment, and the CBAM in the European Union) can only alter the distribution but cannot change the production function.
Thirdly, the marginal variables in the supply side of electrolytic aluminum have shifted from costs to power availability and geopolitical risks. From March to April 2026, the conflict in the Middle East affected the Tawila smelter of Emirates Global Aluminium and the aluminum production of Bahrain Aluminium, with a total capacity of over 2 million tons per year. On March 28, Emirates Global Aluminium announced force majeure for some contracts. Considering that the emergency shutdown of electrolytic cells typically requires a production recovery period of 6 to 12 months, the Middle East accounts for approximately 9% of global electrolytic aluminum capacity and 20% of European electrolytic aluminum supply. The transmission chain of this shock is Europe - Middle East - Global.
From a trading perspective, the cost of electrolytic aluminum in China is within the 40% percentile range of the global curve. However, the 90% percentile cost of the global market has been systematically raised due to the electricity prices and carbon costs in Europe, providing a more solid downward support for the aluminum price compared to the past. The current theoretical profit in the industry exceeds 8,000 yuan per ton, which is at a historical high. The downward repair risk mainly comes from the demand side and the rebound of alumina prices, rather than the impact of overseas low-cost production capacity.
In 2026, the disruption in overseas supply, combined with the hindered resumption of production in Europe and the United States, has made the LME aluminum more likely to have a strong fundamental support for its price movement. The central value of the Shanghai-LME ratio will decline, and the import window will remain closed. This is a relatively certain trend. In the future, attention should be paid to the progress of capacity resumption in the Middle East and the actual release rhythm of new capacity in Indonesia. Looking forward to 2027-2028, the concentrated release of new capacity in Indonesia and India, coupled with the resumption in the Middle East, will likely cause the global fundamentals to shift from shortage to abundance.
