China’s aluminum industry, the world’s largest, is poised for a significant shift in 2025 as government-imposed capacity limits curb production growth and incentivize companies to seek expansion opportunities abroad. This analysis by Hyperloop Capital Insights explores the implications of these developments for the global aluminum market.
Graph showing aluminum production and capacity in China
China implemented a 45 million-ton annual capacity cap in 2017 to address oversupply and reduce emissions. With this limit already reached and 2024 output expected to exceed 43 million tons, production growth is projected to slow considerably. Shanghai Metals Market forecasts a mere 2% expansion in 2025, down from 3.9% in 2024, and a further contraction to 0.7% in 2026. This constrained supply dynamic coincides with potential tightening of sanctions on Russian aluminum, another major global exporter, creating a potential supply gap in the international market.
Map highlighting potential aluminum production locations outside China
The limited production growth within China could reduce the availability of aluminum for export, potentially bolstering global prices. This shift occurs as demand for aluminum in renewable energy sectors continues to rise, offsetting weakness in China’s property sector. According to Howard Lau, a China materials analyst at HSBC Holdings Plc, while aluminum prices might experience a seasonal dip during the Lunar New Year period, a rebound is anticipated afterward, driven by supply constraints and sustained demand expectations. Lau highlights the significance of structural demand growth from renewables, which, coupled with ongoing economic stimulus in China, is expected to support aluminum prices.
In 2024, China’s price advantage facilitated a 17% surge in aluminum product exports, reaching a record 6.7 million tons. However, the removal of tax rebates in December and slowing production growth are likely to diminish this advantage. SMM projects a potential 9% decline in overseas sales in 2025, which could translate to higher international aluminum prices.
The constraints on domestic expansion have prompted Chinese smelters to invest in overseas projects, notably in Indonesia, to leverage its abundant bauxite resources. However, challenges remain, including reliance on coal-fired power and underdeveloped infrastructure. Furthermore, while some smaller Chinese smelters are exploring opportunities in South America and Africa, these initiatives are still in their nascent stages, according to SMM analyst Cassie Yao.
In conclusion, the convergence of capacity limits, robust demand from renewable energy sectors, and potential geopolitical shifts positions the aluminum market for a period of transformation. China’s reduced production growth and potential decline in exports could tighten global supply, leading to price increases and creating opportunities for producers outside of China. While Chinese companies are actively pursuing international expansion, challenges in infrastructure and sustainable energy sources will need to be addressed to ensure the long-term viability of these ventures. The evolving landscape of the aluminum industry presents both challenges and opportunities for stakeholders across the global value chain.
