On May 27, 2025, the China Securities Regulatory Commission officially approved the registration of aluminum alloy futures and options on the Shanghai Futures Exchange, marking the world’s first futures product with recycled aluminum as its core to enter the Chinese derivatives market. This measure will not only reshape the pricing mechanism of the aluminum industry chain, but may also become a key financial tool to promote the low-carbon transformation of the global aluminum industry.
The profound impact on the aluminum industry chain
Breakthrough in Standardization of Recycled Aluminum Industry
As the world’s largest producer and consumer of cast aluminum alloys (with a production of 6.2 million tons and a consumption of 6.73 million tons in 2024), China’s recycled aluminum industry has long faced the pain point of pricing mechanism confusion. Cheng Huawei, the manager of the Secretariat Office of Guangdong Hongjin New Materials Group, pointed out that downstream customers have a strong demand for price locking orders, but due to the lack of recycled aluminum futures varieties, enterprises can only rely on primary aluminum futures or forward orders to lock prices, resulting in pricing deviation risks. The launch of aluminum alloy futures will directly fill this gap, achieve price linkage between recycled aluminum and primary aluminum, and promote the standardization process of the industry.
Innovation in Risk Management Tools
The listing of futures and options tools provides a new means for aluminum industry chain enterprises to hedge price fluctuations. Taking recycled aluminum enterprises as an example, the proportion of scrap aluminum in their raw material costs exceeds 70%, and the fluctuation range of scrap aluminum prices is always higher than that of electrolytic aluminum. Through the futures market, companies can achieve:
Hedging: Lock in the cost of raw material procurement and product sales prices to avoid the risk of metal price fluctuations.
Inventory management: Utilizing futures warehouse receipts to alleviate off-season inventory pressure and expand sales channels.
Financing innovation: Using futures warehouse receipts as collateral to obtain low-cost financing and optimize the capital chain.
Low carbon transformation accelerator
Casting aluminum alloys mainly uses scrap aluminum as raw material, and producing 1 ton of recycled aluminum can reduce carbon emissions by more than 95%, which is the core path of low-carbon transformation in the global aluminum industry. Wang Jian, Vice President of China Nonferrous Metals Industry Association, emphasized that futures tools will guide capital to gather in the green aluminum industry, and accelerate the industry’s low-carbon transformation through the transmission mechanism of “price signal resource allocation industrial upgrading”.
Reconstruction of Futures Market Pattern
1. Battle for pricing power
Wang Rong, assistant director of Guotai Junan Futures Research Institute, predicts that the listing of aluminum alloy futures will challenge the global pricing dominance of the London Metal Exchange (LME) in aluminum prices.
The reason is that:
China’s recycled aluminum production accounts for 57% of the world’s total, and futures products directly reflect the demand in the Asian market.
Innovation in delivery product design: The proposed dual delivery system of “recycled aluminum ingots+aluminum alloy bars” in the previous period is more in line with the actual needs of Asian processing enterprises.
Policy dividend support: Under China’s “dual carbon” goals, green aluminum products will enjoy tax incentives, enhancing the authority of futures prices.
2. Structural change of participants
It is expected that the futures market will present three major participating groups:
Industry chain enterprises: aluminum smelters, recycled aluminum processing enterprises, automotive parts manufacturers, etc., with an expected proportion of over 60%.
Investment institutions: CTA funds, commodity hedge funds, utilizing price fluctuations to generate returns.
Cross border traders: With the internationalization of China’s futures market, companies in Southeast Asia, the Middle East, and other regions that consume recycled aluminum will participate in arbitrage.
Enhanced price discovery function
The current spot market for cast aluminum alloys lacks unified pricing, with regional price differences often reaching 500 yuan/ton. After the futures market is listed, price transparency will be significantly improved through centralized bidding and delivery mechanisms. Based on the experience of rebar futures listing, it is expected that futures prices will become the pricing benchmark for over 80% of the country’s recycled aluminum trade within 3 years.
Strategic significance and industry insights
New paradigm of serving the real economy
As stated in the previous issue, the foundry aluminum alloy futures will adhere to the positioning of “serving green development” and force industrial upgrading by setting strict quality standards for delivery products (such as impurity content and mechanical properties). This echoes the carbon footprint requirements of the European Union’s Carbon Border Tax (CBAM) for imported aluminum products, helping China’s aluminum industry enhance its international competitiveness.
Reshaping the Global Aluminum Market Landscape
The rise of China’s recycled aluminum industry is rewriting the global aluminum supply and demand map. In 2024, the proportion of recycled aluminum production in China to primary aluminum has reached 22%, while the global average is only 15%. The improvement of futures instruments will accelerate this process, and it is expected that by 2030, the proportion of recycled aluminum production in China will exceed 35%, further squeezing the overseas high carbon aluminum market space.
Revelation of Derivative Innovation
The launch of aluminum alloy futures has provided a model for the futures trading of other recycled metal varieties, such as recycled copper and zinc. The core logic is to incorporate “urban mining” resources into the commodity pricing system and promote the development of circular economy through financial innovation.
Overall, the listing of aluminum alloy futures and options is not only a new milestone for China’s derivatives market to serve the real economy, but also a key financial infrastructure for the low-carbon transformation of the global aluminum industry. With the construction of the delivery warehouse network and the improvement of cross-border transaction mechanisms, this variety is expected to become the most influential non-ferrous metal pricing center in the Asian time zone, reshaping the value distribution logic of the global aluminum industry chain.
Post time: May-29-2025