Against the backdrop of intensified volatility in the global metal market, the aluminum industry has demonstrated unique anti cyclical properties due to the rigid constraints of China’s capacity ceiling policy and the continuous expansion of new energy demand. In 2025, the market landscape of this strategic metal is undergoing profound changes, with production capacity constraints, energy transformation, and geopolitical policies intertwined, shaping a new investment paradigm under tight supply-demand balance.
Policy rigidity builds bottom, highlighting the ceiling effect of China’s production capacity.
Since the implementation of the 45 million tons/year production capacity red line in 2017, the utilization rate of electrolytic aluminum production capacity in China has reached the critical value of 98%. As of March 2025, the domestic production capacity has reached 45.17 million tons, and hydropower rich areas such as Yunnan and Inner Mongolia have become the main battlefield for capacity replacement. It is worth noting that the seasonal constraints on hydropower supply in Yunnan region have become increasingly prominent – reducing production during the dry season may affect 20% of the country’s operating capacity. This “weather dependent” supply model has led to a million ton supply-demand gap in local markets. At the same time, the expansion of overseas production capacity is struggling, with Europe experiencing slow resumption of production due to high energy costs, and countries such as India and Russia struggling to offset the global supply contraction caused by China’s capacity cap.
Structural changes on the demand side, with the new energy track becoming the core engine.
The demand side presents a “dual track drive” feature: in traditional fields, China’s infrastructure stimulus policies promote the growth of aluminum demand for new infrastructure such as ultra-high voltage and rail transit. It is expected that the proportion of aluminum consumption in related fields will increase to 15% by 2025; In emerging fields, lightweighting of electric vehicles and expansion of photovoltaic installed capacity constitute the main increments. Data shows that the aluminum consumption of new energy vehicles per vehicle has increased by 2-3 times compared to traditional fuel vehicles, and the annual compound growth rate of aluminum consumption for photovoltaic frames and brackets has reached 26%. More noteworthy is that the substitution effect of aluminum in energy transition is gradually emerging, and its conductivity and lightweight advantages are eroding the market share of copper materials. JPMorgan predicts that the global aluminum demand growth rate will reach 4% by 2025, significantly higher than copper’s 2.1%.
The intensification of price games and the emergence of structural opportunities amidst range oscillations.
The current operation of aluminum prices presents three major characteristics: firstly, LME aluminum prices fluctuate in the range of $2700-2900/ton, reflecting the tug of war between supply shortage expectations and macro uncertainty; Secondly, the domestic price of Shanghai aluminum is supported by the expectation of production restrictions in Yunnan, and the 20000 mark has become the focus of long short games; Thirdly, the fluctuation of alumina prices has intensified, and the increase in bauxite production capacity in Guinea has formed a hedge against domestic environmental restrictions. The Morgan Stanley model shows that in the event of a major supply disruption, aluminum prices could break through $3000/ton, while a global economic recession could hit the psychological level of $2000.
Risk matrix upgrade, four major variables need to be closely tracke
Four major risk points to be cautious of when investing in aluminum industry.
One is the adjustment of China’s production capacity policy, which needs to pay attention to the suppression of high energy consuming production capacity by carbon emission trading.
The second is the fluctuation of global energy prices, and the European natural gas crisis and the transition of Yunnan hydropower from wet to dry periods may cause cost shocks.
Thirdly, there is a shift in trade policy, and there is a risk of repeated US tariffs on aluminum products from China.
The fourth is the drag effect of the real estate chain, and the adjustment of the Chinese real estate market may cause a contraction of 8% -10% in demand for construction aluminum.
Strategic suggestion: Grasp certainty and avoid structural risks
1. Rigid target of production capacity: Focus on leading enterprises in low-cost regions such as Yunnan and Xinjiang, whose production capacity stability is scarce under the constraint of hydropower.
2. Layout of the new energy track: Priority will be given to suppliers of high value-added materials such as photovoltaic frames and battery trays.
3. Hedging opportunity: Lock in profits from electrolytic aluminum production during the alumina price correction window.
4. Geopolitical risk hedging: Pay attention to the progress of Guinea bauxite projects and avoid risks from a single supply source.
Standing at the point of 2025, the aluminum market is transforming from traditional cyclical products to strategic emerging materials. The continuous efforts of China’s production capacity policy and the deep promotion of global energy transformation have made this metal both resistant to inflation and enjoy a growth premium. Investors need to find the optimal risk return ratio allocation plan in the three-dimensional coordinates of policy rigidity, energy security, and demand change.
Post time: May-20-2025