China's aluminum capacity cap of 45 million tonnes per year is the single most important supply-side factor in the global aluminum market. With domestic smelters operating at approximately 92% utilization, the ceiling means that any growth in Chinese aluminum demand must be met by imports, supporting global prices at elevated levels.
Yunnan province, which accounts for roughly 12% of China's capacity, has seen a steady recovery in hydropower availability since May. Smelters curtailed during the dry season have been gradually restarting, adding approximately 300,000 tonnes of annualized capacity back to the grid.
Outside China, global smelter capacity additions are limited. New capacity in Indonesia, India, and the Middle East is proceeding slowly, with environmental reviews and power supply agreements causing delays. Total smelter capacity outside China is essentially flat year-on-year.
The carbon intensity of Chinese aluminum production remains a concern for ESG-conscious buyers. Chinese smelters using coal-fired power generate 15-20 tonnes of CO2 per tonne of aluminum, compared to 4-6 tonnes for hydro-powered smelters. This gap is driving growing demand for low-carbon primary aluminum.
Aluminum demand from the EV and renewable energy sectors continues to grow at 5-7% annually, partially offsetting weakness in construction and packaging. The overall market balance remains tight enough to keep prices supported above $3,700/mt.
The capacity cap creates a structural floor for aluminum prices. Even with temporary supply scares unwinding, the ceiling on Chinese output prevents any sustained price collapse. Use dips below $3,700/mt to extend forward coverage.