SunSirs: Global Aluminum Supply Gap & China’s Export Boom

On June 17, the United States and Iran signed a memorandum of understanding centered on ending conflicts on all fronts and opening the Strait of Hormuz. Crude oil prices fell immediately, and macro sentiment rebounded, yet aluminum prices remained relatively weak. Expectations for the resumption of electrolytic aluminum production and outbound inventory shipments in the Middle East, coupled with pressure from new capacity launches in Indonesia, weighed on overseas aluminum prices, driving them down from high levels and triggering a rapid convergence of the domestic-overseas price ratio. At present, however, the US-Iran peace talks are at a stage characterized by "established frameworks and tangible progress, yet extreme fragility". It is premature to conclude that the energy crisis has been resolved. Production cuts of electrolytic aluminum in the Middle East cannot be reversed in the short term, new Indonesian capacity will fail to fill the supply gap anytime soon, and a rigid supply shortfall persists in overseas markets. Despite the sharp convergence of the domestic-overseas price ratio and a strong renminbi, China’s export orders remain robust, and the domestic inventory destocking cycle remains intact. Corrections in aluminum prices will only accelerate the drawdown of visible inventories, thereby offering stronger support to aluminum prices.

The overseas supply gap is difficult to make up in the short term.

Assessment of the Resumption of Middle East Aluminum Smelting Plants

On October 21, 2025, Iceland Century Aluminum reduced production due to electrical equipment failure. Stimulated by the high profit in the industry, it accelerated the resumption of production and resumed production on April 23, 2026, with a production cycle of 6 months. So far, the market's assessment of the scale of aluminum electrolysis reduction in the Middle East has reached about 2.85 million tons, and all projects have been affected by the war, not due to active reduction or raw material transportation blockage. Even if the war ends, it will take a long time to repair the damaged plants and resume production in an orderly manner. It is expected that the resumption cycle will last for more than a year, and the normal ramp-up period for capacity release will further delay the full production. Even if the current optimistic estimate of the resumption cycle reaches full production in the fourth quarter of 2027, the current Middle East conflict is still ongoing, and the actual resumption of production in the Middle East is difficult to meet the expectations.

Middle East Aluminum Inventory Assessment for Export

CRU data statistics show that in the second quarter, the expected production of aluminum in the Middle East region is 9.7 million tons, of which, the 4.0 million tons of aluminum produced by the Oman Aluminum Plant located outside the Strait of Hormuz is not blocked in substantial transportation. In addition, during the 3 months of the blockade of the Strait of Hormuz, the local operating aluminum plants did not reduce production due to the lack of alumina raw material supply, indicating that the actual land or land-sea combined transportation logistics is smooth, but there is a low logistics efficiency, resulting in the actual goods forming a stock. More than 40% of the aluminum in the Middle East region is exported to the EU, which is the core force to fill the gap in Russian aluminum exports. Comprehensive assessment shows that 60% to 80% of the aluminum in the Middle East region (including downstream processing) is exported, and 20% to 40% is digested in the local region. Therefore, considering the internal digestion and the low efficiency of foreign transportation at the same time, the local backlog is about 3 million tons. Even if the Strait of Hormuz is opened, the local backlog is concentrated and exported, and the impact on the aluminum supply market is extremely limited.

Assessment of Overseas Electrolytic Aluminum Supply Growth

The new capacity of overseas electrolytic aluminum is mainly concentrated in Southeast Asia, where the biggest constraint to the commissioning of electrolytic aluminum is the stable supply of electricity, sudden accidents, and the speed of power plant construction, which seriously affects the commissioning of electrolytic aluminum. The expansion project in India has been seriously delayed due to the impact of a power plant explosion accident, and although the Indonesia Lianke project began commissioning at the end of 2025, half a year has passed and only 80% of the commissioning has been completed. Although there are still projects such as Shanshan and Nanshan in Indonesia in the later period, and there are still new capacities in planning and construction in Saudi Arabia and Angola, it is difficult to contribute to the production this year.

Comprehensive assessment of overseas markets, considering the production cuts in the Middle East region, and the new production capacity and resumption of production overseas, it is expected that the overseas electrolytic aluminum production in 2026 will decrease by about 800,000 tons compared to 2025.

Domestic consumption has resilience in the off-season.

China's aluminum semifinished products output is rigidly strong.

SMM data statistics show that at present, China's aluminum water ratio is 77.22%, which is higher than the historical level at the same period and close to the peak of last year; the processing fee of aluminum bars is still strong in the off-season, and the industry maintains a profit-making state. This benefits from the transformation of domestic consumption structure, the strong superposition of export orders and the growth driven by new energy consumption, which causes the consumption of aluminum plates, strips and foils to be strong; the consumption of traditional extrusion profiles such as real estate and photovoltaic is relatively weak, and there is a situation that intermediate processing products are turning to the production of large flat ingots from aluminum bars.

In addition, the processing fees for aluminum billets remained extremely sluggish in the early stage, leading processing plants to cut operating rates amid losses. Statistics from Mysteel show that the weekly output of aluminum billets stood at 343,100 tons, lower than the level recorded in the same period last year, yet the output continued to recover and rise month-on-month, pointing to rigid demand. The weekly output of 130 aluminum sheet, strip and foil enterprises reached 393,500 tons, exceeding the historical level for the same period. Output of semi-finished products rose instead of falling amid the traditional off-season for consumption, driven by the growth in exports of Chinese aluminum products.

The EU and the US imposed tariffs on China's exports, but the impact on China's export market is limited.

Trade friction between China and the West will only limit China's direct exports to the West, but the rigid gap in the Middle East can only be made up through overseas exchanges, which will only lead to the extension of trade processes and the increase of friction costs. The smooth operation of China's exports may take more time, which will be reflected in future export data. According to customs data, from January to May, China's net export of aluminum profiles reached 2.319 million tons, a year-on-year increase of 9%; the export of aluminum products reached 1.613 million tons, a year-on-year increase of 13.2%.

In addition, when it was originally expected that exports would become the highlight of domestic aluminum consumption growth in 2026, it was predicted that China's export destinations would tend to be third-world countries, and China's overseas resource investment would drive local infrastructure construction, which has been reflected in the data of export volume. The increase in China's export market more comes from the Asia-Pacific and African regions, while the United States has seen a significant decline in exports affected by tariffs in 2025, and the marginal impact is not great. In terms of excavator exports, the cumulative year-on-year growth rate has reached 32.8%, which also verifies China's investment in "the Belt and Road" and BRICS countries.

Overall, the overseas rigid gap can only be made up through the exchange of goods, trade friction will only cause the process to be lengthened and the cost of friction to increase, and the smooth operation of China's exports may require more time, and there is a lag in export data.

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