Aluminum prices rose by 7.97% in January

Aluminum prices remained strong in January, although they have recently experienced a slight decline. According to SunSirs' commodity market analysis system, as of January 28, 2026, the average price of aluminum ingots in the East China market was 24,265 RMB/ton, an increase of 7.97% compared to the average market price of 22,473.33 RMB/ton on January 1st; and a decrease of 1.65% compared to the monthly high (January 14th) of 24,673.33 RMB/ton.

In January 2026, aluminum prices continued the strong momentum from 2025, surging in the first half of the month and repeatedly reaching new highs. This was primarily driven by three main factors: rigid supply constraints, structural demand growth, and a confluence of macroeconomic and financial factors. These factors, coupled with low inventory levels and rising costs, created a "more likely to rise than fall" scenario. However, it is not advisable to blindly chase the rising prices when they reach new highs. This is because the price is vulnerable at high levels due to the combined pressures of inventory accumulation during the off-season, negative feedback from downstream industries, potential changes in macroeconomic policies, supply elasticity, and profit-taking by investors. The risk of a price correction is significantly greater than the potential gains from chasing the high prices. The specific reasons are as follows:

1. Fundamentals: Inventory accumulation during the off-season + weak demand from downstream buyers, exacerbating the negative feedback loop.

Before the Spring Festival, downstream processing enterprises gradually closed for the holidays. The traditional off-season for consumption, coupled with high prices, suppressed purchasing intentions, leading to a continuous accumulation of aluminum ingot inventories (as of January 28th, domestic social inventories were approximately 796,000 tons, an increase of 28,000 tons from the previous week, approaching 800,000 tons, higher than the same period last year). The discount of spot prices to futures contracts widened, highlighting the wait-and-see attitude of downstream buyers.

Aluminum rod processing fees have turned negative, and small and medium-sized processing plants were reducing or halting production. End-user demand was not being effectively transmitted, due to a weak real estate market and exhausted automotive orders. Traditional sectors were unable to support high prices, and only emerging demands such as those from the new energy sector were providing limited support.

2. Supply side: Potential increase in supply and expectations of production recovery may narrow the supply gap

Domestic electrolytic aluminum production capacity was approaching the policy ceiling of 45 million tons, but if new capacity in Indonesia comes online faster than expected, and lower electricity prices in Europe lead to the resumption of production at some aluminum plants, it will increase global supply and narrow the supply-demand gap.

Marginal adjustments to environmental policies and easing geopolitical tensions abroad may release idle capacity, indicating that supply constraints are not absolutely rigid, and high prices may actually incentivize companies to accelerate their production resumption/expansion plans.

3. Macroeconomic factors: Policy shifts and uncertainties surrounding economic recovery are suppressing metal prices.

If expectations for a Federal Reserve interest rate cut are delayed or the cuts are less aggressive than anticipated, a stronger dollar will directly suppress industrial metal prices, and a slower pace of global economic recovery will drag down demand for aluminum in the manufacturing sector.

The weak recovery of the domestic economy and the less-than-expected stabilization of the real estate market, coupled with the difficulty in implementing new stimulus policies, make it challenging to sustain the continuous surge in aluminum prices. If macroeconomic sentiment cools down, capital outflows will trigger a temporary decline in spot prices.

4. Funding and Sentiment: Profit-taking at high levels increases volatility risk.

After aluminum prices reached a new high, speculative investors showed an increased willingness to take profits and exit the market, making market sentiment easily influenced by price movements in related sectors.

5. Costs and Valuation: Prices were deviating from fundamentals, making a correction more attractive in terms of value.

The tax-inclusive cost of electrolytic aluminum was approximately 16,200 RMB/ton. Although there was cost support, the price had deviated significantly from the cost, and the potential for a downward correction was greater than the potential for further increases. This led to increased hedging demand from aluminum ingot manufacturers.

Although global visible inventories are low, structural shortages are unlikely to support unlimited price increases. If inventories accumulate beyond expectations, it will break the "easy to rise, difficult to fall" pattern..

In summary, the high aluminum prices are the result of a tug-of-war between strong supply expectations and weak actual demand. Short-term inventory accumulation, negative feedback from downstream industries, and macroeconomic uncertainties all point to a risk of price correction.  Buying at these high prices and stockpiling inventory is extremely uneconomical.

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