China's primary aluminum output reached an estimated 3.65 million tonnes in May 2026, a new monthly record according to International Aluminium Institute (IAI) data. Chinese smelters are running at roughly 95% of nameplate capacity, driven by the full restoration of hydropower supply to smelters in Yunnan province -- a region that had been operating at reduced rates through much of 2024 and early 2025.
The surge in Chinese production has flipped the global aluminum market from a modest deficit of roughly 200,000 tonnes in Q1 to an estimated surplus of 300,000 tonnes in the first half of 2026. Chinese exports of semis -- aluminum products like extrusions, sheet, and foil -- have risen accordingly, putting downward pressure on premiums in Europe, Japan, and the US.
The capacity restart in Yunnan has been orderly but significant. Yunnan alone added roughly 1.2 million tonnes of annual capacity back online in Q1-Q2 2026, equivalent to nearly 2% of global production. Unlike previous cycles where capacity restarts were gradual, hydropower availability has been strong and smelters have ramped up faster than expected.
Looking ahead, China's aluminum production faces a ceiling -- the government's 45 million tonne annual capacity cap is binding. But with current output at 43.8 million tonnes per year, there's still room to grow before hitting the limit. The surplus is unlikely to reverse until either Chinese demand accelerates meaningfully or higher-cost smelters outside China begin to curtail output.
The Chinese production surge means aluminum buyers have the upper hand for the first time since early 2024. This is not a time for fixed-price annual contracts — the surplus is growing and premiums are falling. Negotiate quarterly or even monthly pricing indexed to LME plus a declining premium. Pushing for lower Midwest, Rotterdam, and MJP premiums in Q3 contracts is a winnable ask.