Aluminum Smelter Margins Turn Negative as Price Crash Outpaces Alumina Decline

The aluminum price crash is now biting into smelter margins. At $3,132 per metric tonne on the LME, an estimated 20-25% of global primary aluminum capacity is operating at or below cash breakeven. While alumina costs have fallen roughly 15% from their March peak — providing some relief — they haven’t fallen fast enough to offset the $670/mt decline in aluminum since the start of June.

The pain is concentrated in Europe. European smelters, which pay higher power costs than their Chinese and Middle Eastern competitors, are estimated to be losing roughly $150 per tonne at current LME prices. Several European smelters that restarted in 2024-2025 after the energy crisis are now at risk of curtailment. If LME aluminum falls below $3,000, the economics for European production become untenable without government support.

In China, the picture is mixed. Smelters with captive coal-fired power in Xinjiang, Inner Mongolia, and Yunnan (where hydropower costs are low) are still marginally profitable at $3,132. But smelters in Shandong and Henan that pay market rates for power are underwater. Chinese aluminum production costs range from roughly $2,700/mt for the lowest-cost producers to $3,300/mt for the highest. At $3,132, the top quartile of Chinese production is losing money.

The history of aluminum markets suggests that when prices fall below the cost curve, production cuts follow within 4-8 weeks. In Q4 2025, when aluminum briefly dipped below $3,200, Chinese smelters announced roughly 500,000 tonnes of capacity curtailments, and prices rebounded $400 within two months. The question now is whether this cycle repeats — or whether Chinese smelters, facing a surplus market, choose to produce through the losses longer than they have in the past.