The cyclical fluctuations of the aluminum Shanghai-London ratio are essentially driven jointly by the impact of geopolitical events and the divergence between internal and external fundamentals, with geopolitical factors dominating in most periods.
March 2017 – December 2017:
China's supply-side structural reform
From March to August 2017, the Shanghai-London aluminum price ratio trended upward from a low of 7.1 to 8.1, driven by the core factor that China's supply-side structural reform of electrolytic aluminum shifted from policy expectations to the actual reduction of production capacity. This led to a divergence in the supply and demand patterns of the domestic and international aluminum markets, giving the domestic aluminum prices independent strong upward momentum separate from the overseas market. In April 2017, the government of the Xinjiang Uygur Autonomous Region took the lead in halting 2 million tons of illegally constructed production capacity. Subsequently, the intensity of policy implementation was gradually increased, with the focus mainly on the major producing areas of Xinjiang and Shandong. The intensive implementation of policies and the actual progress of production reduction formed an effective resonance. During this period, the Shanghai aluminum price showed a unilateral upward trend of "easy to rise and hard to fall", while the LME aluminum price passively followed the rise due to the lack of independent fundamental logic.
Entering the fourth quarter of 2017, the marginal effect of policy disturbances weakened, and the Shanghai-London aluminum ratio gradually returned from its high level, driven by multiple micro-fundamental factors behind it: First, the actual implementation intensity of production limits during the heating season was below market expectations, and the previous strong market expectation of further supply contraction was falsified; Second, the social inventory of domestic aluminum ingots remained at a historical high of over 1.7 million tons, and production cuts on the supply side did not fundamentally reverse the overcapacity pattern; Third, the reform of the LME warehousing system accelerated the release of hidden inventories, and LME aluminum inventories continued to decline. After the Shanghai-London aluminum ratio rose, China's aluminum exports decreased month by month, which instead exacerbated the supply shortage in the overseas spot market and formed a clear bottom support for the London aluminum price. The ebb and flow of the fundamental differences between domestic and international markets finally drove the Shanghai-London aluminum ratio to complete a complete "rise and fall" cycle.
September 2017 – September 2019:
Sanctions and Lifting of Sanctions on Rusal
From September 2017 to April 2019, the Shanghai-London aluminum price ratio experienced a sharp "rollercoaster" fluctuation, with its core trend entirely centered on the escalation and subsequent de-escalation of the sanctions against Rusal. In April 2018, the U.S. sanctions on Rusal became the trigger for a sharp drop in the Shanghai-London aluminum price ratio. On April 6, 2018, the U.S. Department of the Treasury announced sanctions against Rusal and its major shareholder Oleg Deripaska. Rusal is the world's second-largest primary aluminum producer, with an output of 3.707 million tons of primary aluminum in 2017, accounting for approximately 7% of global production. Following the sanctions announcement, the London Metal Exchange (LME) immediately declared that it would temporarily remove Rusal primary aluminum ingots from its approved brand list starting April 17, 2018. This meant that Rusal aluminum ingots could no longer be delivered on the LME, triggering extreme panic of a "spot supply disruption" in the overseas market overnight. The LME aluminum price soared in the short term, and the Shanghai aluminum price followed suit but was notably weaker. The Shanghai-London aluminum price ratio plummeted, falling below 6.4.
On April 24, 2018, the U.S. Treasury Department sent a signal of relaxation, stating that it might ease the sanctions if the major shareholders of Rusal give up control. On January 27, 2019, the U.S. Treasury Department officially announced the lifting of sanctions on Rusal and three other companies, and Rusal regained its registration and delivery qualifications on the LME. Since then, under the expectation of the return of overseas supply, aluminum prices have continued to weaken, and the Shanghai-London aluminum price ratio has thus gradually rebounded from a low level. By September 2019, it had recovered to 8, basically completing a complete cycle from the impact of the extreme sanction incident to the normalization of the internal and external price spreads.
September 2021 – September 2022:
Russia-Ukraine Conflict + Domestic Dry Season
From September 2021 to September 2022, the Shanghai-London aluminum price ratio once again completed a complete cycle of "falling first and then rising", with its core driving force coming from the succession of overseas geopolitical shocks and domestic supply-side disturbances.
In the fourth quarter of 2021, European natural gas and electricity prices soared, significantly raising the cost of electrolytic aluminum smelting. The production capacity of electrolytic aluminum in Europe was cut by more than 1.5 million tons, and this wave of production cuts directly tightened the spot supply overseas. On February 24, 2022, the Russia-Ukraine conflict broke out, raising market concerns about blocked exports of Russian aluminum. Subsequently, Rusal temporarily closed its Nikolaev Alumina Refinery in Ukraine, further exacerbating market anxiety about supply shortages. LME aluminum inventories continued to drop to less than 800,000 tons, and the low inventory environment amplified the upward push elasticity of any marginal supply disturbance on the LME aluminum price.
The overseas aluminum market has gained an independent and strong upward narrative, with the Shanghai-London aluminum price ratio dropping to a minimum of 6.3 in March 2022. As the geopolitical narrative was fully priced in by the market, the macro logic shifted. In March 2022, the Federal Reserve officially launched an aggressive interest rate hike cycle, global liquidity tightened and recession expectations heated up, and since then, the London aluminum price has continued to fall from historical highs.
Meanwhile, domestic supply-side disturbances took over as the core variable: starting from July 2022, the southwest region was hit by extreme high temperatures, leading to a power supply shortage, and approximately 1 million tons of electrolytic aluminum production capacity in Sichuan Province was forced to be completely shut down; in September 2022, Yunnan received another notice to reduce load for electrolytic aluminum enterprises as the water inflow during the flood season dropped by nearly 50%, resulting in a continuous compression of operating capacity. The seasonality and vulnerability of hydropower in the southwest were fully exposed under extreme weather. The fundamentals at home and abroad moved in opposite directions: overseas macro-negative news suppressed London aluminum prices, while domestic supply contraction supported Shanghai aluminum prices, which together drove the Shanghai-London aluminum ratio to rapidly repair from the historical low in the first quarter to the equilibrium level.
March 2024 – June 2026: LME and CME Reject Russian Aluminum + Middle East
Geopolitical Conflicts
Since 2024, the Shanghai-London aluminum ratio has entered a long-term downward channel, mainly due to the continuous reshaping of the overseas aluminum supply side by geopolitical risks, coupled with the re-sanctions on Rusal and the geopolitical conflicts in the Middle East.
On April 13, 2024, the US and the UK imposed a new round of sanctions against Russian aluminum, prohibiting the LME and CME from accepting Russian metal produced on and after April 13. The core driving force is still geopolitical motives. Against the backdrop of the prolonged Russia-Ukraine conflict, they continue to weaken Russia's sources of economic income. The impact of the sanctions on Rusal has once again sparked strong market concerns about overseas supply.
In 2025, the geopolitical situation in the Middle East escalated sharply, becoming another key factor that weighed down the LME-Shanghai aluminum ratio.
Qatar Aluminium, Bahrain Aluminium and EGA have all suffered successive setbacks and been forced to suspend production, with production cuts approaching 3 million tons, accounting for 40% of the Middle East's capacity. In addition, the disruption to shipping through the Strait of Hormuz has sparked anxiety over raw material supply, and the market worries that the scope of production cuts will expand further. The concentrated supply disruptions in the Middle East, together with the "structural gap" formed after UC Rusal was blocked from trading on the LME, have jointly pushed up the spot premium of non-Rusal aluminum brands. The tradable non-Rusal aluminum inventories in LME warehouses have been rapidly drawn down, and the aluminum spot premiums in Europe, the United States and Japan have risen sharply accordingly. Overseas aluminum prices have remained strong under multiple supply shocks. However, Shanghai aluminum is constrained by weak domestic demand, with inventories hitting a record high, and the price has struggled to follow the rally.
The incremental supply of electrolytic aluminum in China is limited
The pressure of long-term supply overseas cannot be ignored
According to SMM data, the current operating capacity of domestic electrolytic aluminum has reached 45.61 million tons, with an operating rate of 98.54%, hitting the "ceiling" of production capacity. This means it will be difficult for subsequent domestic supply to contribute a significant increase. Overseas, although the specific rhythm of new production and resumption of production is difficult to accurately predict, the supply pressure is expected to increase significantly.
Looking ahead, the incremental supply of domestic electrolytic aluminum is limited. The idle production capacity to be resumed in the Middle East is about 2.5 million tons. Even considering the impact of tight power supply, the planned production capacity to be put into operation in Southeast Asia and Angola from now to 2027 also exceeds 2 million tons. The long-term supply pressure overseas cannot be ignored. From a comprehensive supply-side perspective, the structural differences between the domestic production capacity "ceiling" constraints and the gradual increase in overseas production will continue to support the continued rise of the Shanghai-London aluminum ratio. Although the pace is difficult to grasp, the directional driving force is relatively clear. In the future, the following risks need to be guarded against: First, overseas consumption performance is stronger than domestic; second, if overseas investment and resumption of production fall short of expectations, it will trigger phased supply and demand mismatches; third, current LME inventories are at an extremely low level; fourth, geopolitical uncertainty may still escalate, and risk premiums may be repriced at any time.
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