SHFE aluminum prices rose to 24,730 CNY/mt, pushing the premium over LME to roughly 80 CNY/mt, the widest spread since late March. The premium reflects China's domestic supply constraints colliding with steady demand from the construction and automotive sectors.
China's aluminum capacity cap of 45 million tonnes per year is now effectively binding. The National Development and Reform Commission (NDRC) has not issued new smelting permits since 2024, and industry forecasts put 2026 total output at 44.2 million tonnes, just 1.5% above 2025 levels.
Yunnan province, which accounts for 12% of China's aluminum output, is operating at 85% of capacity for the hydro season. This is below the 90% typical for June, as lower reservoir levels in the Mekong basin have reduced hydropower availability. Any further hydro curtailments would tighten domestic supply significantly.
Downstream demand remains firm. China's automotive production rose 4.7% year-on-year in May, while construction starts showed modest improvement. Aluminum extruder utilization rates held at 72%, and flat-rolled product demand is supported by the solar mounting structure buildout.
The Chinese premium over LME may persist through summer as the capacity cap constrains supply growth. Import buyers should lock LME-based pricing now rather than wait for the premium to compress. Domestic Chinese buyers should contract directly with smelters for Q3 delivery volumes.