European aluminum smelters that curtailed capacity during the 2021-2022 energy crisis have not returned to full production. Current power prices of 80-110 EUR/MWh remain above the 50-60 EUR/MWh threshold that most smelters need to operate profitably. Only about 300,000t of curtailed European capacity has restarted, out of roughly 1.2 million tonnes idled.
China's Yunnan province, which accounts for roughly 12% of national aluminum production, reached 1.15 million mt per month in May, close to its hydro-powered capacity ceiling. The rainy season has brought sufficient water for hydropower, but any dry-period recurrence later in the year could force cuts. Yunnan smelters were forced to curtail 400,000t of capacity in early 2025.
Carbon costs under the EU's Carbon Border Adjustment Mechanism (CBAM) add an estimated $80-120 per metric ton to European-produced aluminum compared to imports. While CBAM's transitional phase continues, full implementation expected in 2027 will eliminate the cost advantage of non-compliant imports.
On the demand side, European aluminum semis orders have slowed in May and June as automotive and construction sectors face headwinds. The European Automobile Manufacturers Association (ACEA) reported a 4% decline in new car registrations in May. Aerospace demand remains robust, with Airbus and Boeing order books extending through 2029.
European smelters remain offline due to power costs, meaning supply flexibility is limited. The Yunnan hydro dependency introduces seasonal risk. Buyers with medium-term exposure should consider hedging through Q4 2026 LME swaps, particularly if Yunnan faces dry-season restrictions later this year. Track CBAM implementation deadlines for long-term sourcing strategy.