Aluminum prices rose by 3.37% in December

Aluminum prices rose in December. According to SunSirs' commodity market analysis system, as of December 31, 2025, the average price of domestic aluminum ingots in the East China market was 22,473.33 RMB/ton, an increase of 3.37% compared to the average market price of 21,740 RMB/ton on December 1st.

In December 2025, aluminum prices continued the upward trend seen at the end of October and repeatedly reached new annual highs, while the price of raw material alumina fluctuated at low levels.  As of December 31, the profit per ton of aluminum was in a relatively favorable position. The average profit per ton of electrolytic aluminum was temporarily between 5,500 and 6,000 RMB/ton, while the average profit per ton of alumina was negative, ranging from -50 to -100 RMB/ton.

The unusual "inverse divergence" between aluminum prices and alumina prices was unsustainable

The "inverse divergence" between aluminum and alumina prices was essentially the result of a short-term mismatch between supply and demand and a divergence in pricing logic. Its unsustainability stems from four core forces: the inherent laws of profit rebalancing within the industrial chain, the hard constraints of supply clearing, the long-term effectiveness of cost transmission, and the subsequent adjustments driven by inventory levels and market dynamics. Ultimately, these forces will drive both prices back to a normal state of moving in the same direction or converging.

On December 26th, the National Development and Reform Commission's Department of Industrial Development released the document "Vigorously Promote the Optimization and Upgrading of Traditional Industries," which focuses on "strengthening management, optimizing layout, curbing blind investment, and promoting mergers and acquisitions" in resource-intensive industries such as alumina. In the short term, this is expected to drive up sentiment and expectations; in the medium term, it will accelerate capacity reduction and structural optimization; and in the long term, it will reshape the supply landscape. The "anti-overcompetition" trend is expected to lead to a redistribution of profits across the metal industry supply chain.

I. Supply side: Losses were forcing capacity reduction, thus restoring the supply-demand balance

Cash costs falling below a critical level triggered passive production cuts: In December 2025, alumina futures prices briefly fell below the cash cost line of 2,400-2,500 RMB/ton, resulting in an industry-wide loss of approximately 50 RMB/ton. Small-scale producers with high ore consumption and high energy consumption (accounting for about 15%-20% of total capacity) were the first to suspend production; in the first half of 2026, a concentrated production cut of 8-12 million tons is expected, reducing supply growth from 8% to 3%-4%, matching the growth rate of electrolytic aluminum demand and reversing the oversupply situation.

Slowing capacity expansion and capacity replacement: Industry losses are dampening enthusiasm for new investments, and planned new capacity for 2026 may be reduced from 13 million tons to less than 8 million tons; meanwhile, stricter environmental and energy consumption regulations are accelerating the exit of high-cost inland capacity, increasing the proportion of low-cost coastal capacity, optimizing the supply structure, and supporting price and profit recovery.

Inventory reduction strengthened price elasticity: High alumina inventories (approximately 1.2 million tons by the end of 2025) will gradually decline with production cuts and demand recovery. When inventories fall below 800,000 tons, tight supply will drive prices to recover above marginal costs, creating conditions for profit recovery.

II. Cost Side: Bottom support strengthened, making a sustained decline in the cost curve unlikely

Bauxite costs were bottoming out and rebounding: Bauxite accounts for approximately 60% of alumina production costs, with an external dependence of about 70%. The rainy season in Guinea, geopolitical disruptions, or low port inventories (<80 million tons) will push bauxite prices from $68–70/ton to $75–80/ton, raising the cost floor for alumina and limiting the downside potential for prices.

Other costs were rising rigidly: fluctuations in the prices of auxiliary materials such as electricity and caustic soda, as well as increased environmental protection investments, were driving up the overall cost of alumina; if the price of alumina remains below the cost line for an extended period, companies will be forced to suspend production due to cash flow problems, creating a rigid cost-based support for prices.

Long-term effectiveness of cost transmission: Alumina accounts for approximately 35%-40% of the cost of electrolytic aluminum. In the long run, changes in costs will eventually be passed on through the cost of electrolytic aluminum, affecting aluminum prices. If alumina costs continue to rise, it will force aluminum prices up or compress the profits of electrolytic aluminum producers, thus restoring the profit distribution across the industry chain.

III. Demand Side: Stable demand for electrolytic aluminum was driving the recovery of alumina demand.

The tight supply-demand situation for electrolytic aluminum continues: domestic electrolytic aluminum production was constrained by the 45 million-ton capacity limit, while overseas (Europe and the United States) production continued to decrease due to high energy costs. Meanwhile, strong demand from new energy sectors (photovoltaics and electric vehicles) is driving a 3%-4% growth in electrolytic aluminum consumption, indirectly boosting demand for alumina and alleviating the supply-demand imbalance.

The release of new overseas aluminum smelting capacity: New aluminum smelting capacity in the Middle East, Southeast Asia, and other regions will generate over 2.4 million tons of additional alumina demand by 2026, further absorbing the surplus supply in the domestic market.

Expansion of demand for high-end alumina: The domestic production of high-purity alumina (4N+) was accelerating, with import dependence at approximately 48%. With domestic technological breakthroughs and increasing demand, the premium for high-end products is rising, improving the overall profitability structure of the industry.

IV. Supply Chain Dynamics: Profit Redistribution and Rebalancing of Bargaining Power

High profits in electrolytic aluminum were driving up raw material prices: With electrolytic aluminum profits reaching 5,500-6,000 RMB/ton, aluminum plants may accept higher alumina prices (such as an increase from 2,500 RMB/ton to 2,700-2,900 RMB/ton) to secure raw material supply, thus sacrificing some of their profits to improve profitability in the alumina sector.

Optimization of long-term contract pricing mechanisms: Alumina companies reduce the risk of spot price fluctuations by signing quarterly/annual long-term contracts to lock in sales volume and prices; increased industry concentration (the market share of leading companies increased from 30% to 40%) strengthens their bargaining power and drives profits back to a reasonable range.

Rebalancing Macroeconomic and Financial Factors: Aluminum prices have strong financial attributes and are significantly affected by factors such as Federal Reserve interest rate cuts and geopolitical disturbances. However, in the long term, they still need to be anchored to fundamentals. If expectations of macroeconomic easing fade or demand declines, aluminum prices may come under pressure, which would then force alumina producers to reduce capacity, thereby driving price and profit recovery.

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