China's aluminum capacity cap of 45 million tonnes per year is now effectively binding, with industry utilization at 92% and new capacity additions constrained by the government's strict quota system. The cap, part of China's broader industrial policy to control energy-intensive production, limits total smelting capacity regardless of demand growth.
Capacity migration from Yunnan province continues, with the region now producing at 5.6 million tonnes per year, up 12% year-on-year. However, grid infrastructure constraints are limiting further expansion. Yunnan's hydropower-dependent smelters face output restrictions during dry season months, creating a recurring 15-20% production swing that adds volatility to China's aluminum supply.
The Shanghai-to-LME price spread reflects China's self-sufficiency, with SHFE aluminum trading at a $180/mt discount to LME cash. This discount has narrowed from $220/mt two weeks ago as Chinese demand stabilizes. China exported 680,000 tonnes of unwrought aluminum and semis in April 2026, up 8% year-on-year but below the 2025 peak.
Outside China, global ex-China production (excluding China) is expected to grow just 1.2% in 2026, constrained by high energy costs in Europe and limited new smelter capacity. The Rusal sanctions impact continues to distort trade flows, with Russian aluminum now flowing predominantly to China and India at discounted prices.
The binding cap means China will be a net aluminum importer in periods of strong demand, supporting global prices. The SHFE discount provides an arbitrage opportunity for buyers with access to Chinese-origin material. European buyers should secure term volumes early, as the ex-China supply deficit is structural. Monitor Shanghai-LME spread for import parity signals.