Overseas supply disruptions and positive macroeconomic factors combine to drive up aluminum prices; potential remains even after the price breakout.
2025-11-6 Source: Guoxin Futures
Key Conclusions
Overall, the recent successful breakthrough and stabilization of aluminum prices above the 21,000 yuan/ton resistance level is a result of a confluence of overseas supply disruptions, the start of seasonal destocking in China, and positive macroeconomic sentiment.
Looking ahead, the "easier to rise than fall" characteristic of aluminum prices is expected to continue. The core support lies in the rigidity of the supply side. Unexpected production cuts at Icelandic smelters have once again highlighted structural issues such as power bottlenecks hindering the release of global electrolytic aluminum capacity. China's 45 million-ton capacity cap further restricts supply elasticity in the long term. Meanwhile, ongoing structural transformation on the demand side and the loose liquidity environment brought about by the Fed's interest rate cut cycle provide medium- to long-term upward momentum for aluminum prices. In the short term, whether aluminum prices can continue to rise depends on the sustainability of destocking and the downstream acceptance of high aluminum prices. Although the copper-aluminum ratio is already high, its recovery path in the short term relies more on a rebound in aluminum prices themselves, which requires stronger marginal improvements in aluminum fundamentals as a driving force.
In summary, against the backdrop of rigid supply and positive macroeconomic expectations, aluminum prices are expected to maintain an upward trend. Subsequent price movements will depend on the pace of inventory reduction and will be influenced by industry policy expectations and changes in macroeconomic sentiment. Shanghai aluminum is expected to show a volatile but upward trend, with resistance at 21,500-22,000 yuan/ton and relatively solid support around 20,500 yuan/ton. A bullish approach is recommended, and existing long positions can be held. In the long term, as long as the rigid supply problem in aluminum remains, any periodic pullbacks in aluminum prices present buying opportunities.
Since 2025, aluminum prices have exhibited an "N"-shaped trend. After falling in April due to Trump's tariffs, prices gradually recovered, and the price center gradually rose. Support also increased from 19,500 yuan/ton, and since mid-June, support around 20,500 yuan/ton has been relatively strong. In mid-to-late October, aluminum prices broke through resistance again amid market expectations.
On October 22, disruptions to overseas primary aluminum production capacity caused LME aluminum prices to rise, continuing to climb in the following trading days, reaching a high of $2889.5/ton, a new high since May 2022. The disruptions to overseas primary aluminum supply triggered bullish sentiment in the international market, with Shanghai aluminum also following suit, breaking through the 21,000 yuan/ton resistance level again. Boosted by positive sentiment from important domestic meetings, prices gradually stabilized around 21,000 yuan/ton and are expected to break through further upwards.
I.
Why were aluminum prices repeatedly blocked by the 21,000 yuan/ton level in the early stages?
1. Declining Electrolytic Aluminum Production Costs and Expanding Industry Profits
Affected by the continuous decline in alumina prices, electrolytic aluminum smelting costs have followed suit since October, leading to a further expansion of the industry's average profit. This higher profitability has, to some extent, constrained the rise in aluminum prices.
According to SMM data, as of October 22, the average cost of electrolytic aluminum was approximately 16,092 yuan/ton, compared to 16,164 yuan/ton in October, a decrease of approximately 1.6% from the September average of 16,425 yuan/ton. During the month, the change in electrolytic aluminum costs mainly followed the decline in alumina prices, continuing to decrease. As of October 22, the average profit of the electrolytic aluminum industry in October was 4,769 yuan/ton, an increase of approximately 9.88% from the September average of 4,340 yuan/ton, indicating a continued strengthening of profitability.
2. Domestic Aluminum Supply Remains Strong, Aluminum Ingot Inventory Accumulation Suppresses Supply
With high profits, aluminum smelter capacity is operating stably overall. Coupled with the gradual completion of capacity replacement projects, China's electrolytic aluminum capacity utilization rate continued to rise month-on-month in October, currently approaching its peak.
According to SMM data, as of the end of September, the national electrolytic aluminum capacity utilization rate was 96.12%, up 0.02% month-on-month, and nearly 0.2% higher than the same period in 2024. Domestic electrolytic aluminum built capacity was 45.84 million tons, and operating capacity was 44.06 million tons. Both operating capacity and industry utilization rate saw slight month-on-month increases, mainly due to the second phase of the Shandong-Yunnan replacement project and the gradual commissioning and resumption of production of previous technical upgrade projects in Guangxi. In terms of output, a report released by the National Bureau of Statistics shows that China's primary aluminum (electrolytic aluminum) output in September 2025 was 3.81 million tons, an increase of 1.8% year-on-year. From January to September, electrolytic aluminum output was 33.97 million tons, a cumulative year-on-year increase of 2.2%. Overseas, according to SMM statistics, total overseas electrolytic aluminum production in September 2025 was approximately 2.498 million tons, a decrease of nearly 1 million tons compared to August.
From a fundamental perspective, electrolytic aluminum capacity utilization remained stable at a high level. Demand during the peak season was relatively weak, lacking highlights compared to the photovoltaic "rush to install" during the first half of the year. Aluminum ingot inventories failed to see a turning point after entering the peak season, and with the continuous decline in raw material alumina prices, the profitability of the electrolytic aluminum segment gradually expanded to a relatively high level approaching 5,000 yuan/ton. Overall, the fundamentals provided insufficient bullish drivers for prices.
Although aluminum prices crossed the resistance line during this period due to strong market expectations of a Fed rate cut, prices retreated again as the sentiment was digested. Furthermore, compared to copper, which has stronger financial attributes and faces more severe shortages due to mining disruptions, and is considered a "global economic barometer," bullish funds lack confidence in the aluminum market. In the past month, Shanghai aluminum futures open interest has hovered around 500,000 lots, indicating slightly insufficient market momentum.
II.
What is the driving force behind aluminum price breakthroughs?
In recent years, the solid bottom support for aluminum prices has come from two aspects: the rigidity of the supply side and the consistently low aluminum ingot inventory due to declining ingot production. The driving force for rising aluminum prices comes from structural changes and growth expectations in demand under the long-term global green energy transition narrative, as well as the expectation of looser macro liquidity after the Federal Reserve entered a rate-cutting cycle. It can be seen that the "easier to rise than fall" nature of aluminum prices is jointly constructed by both its commodity and financial attributes.
The recent rise in aluminum prices, triggered by overseas supply disruptions and gradually attracting bullish funds, reflects a further amplification of the rigidity problem in aluminum supply, and once again highlights aluminum's characteristic as a diversified commodity in the industrial metals sector. From a funding perspective, since October 22nd, the open interest of Shanghai aluminum futures has been rising continuously, reaching over 600,000 lots by October 24th. This strengthening of bullish momentum has been a significant driving force behind the recent rise in aluminum prices.
1. Disruptions to Overseas Aluminum Supply
According to Mysteel, Norøurál Grundartangi ehf, a wholly-owned subsidiary of Century Aluminum, announced on the 21st that due to an electrical equipment malfunction at its Grundartangi aluminum smelter in Iceland, one of its two electrolytic cell production lines was forced to temporarily shut down. The smelter's production has been temporarily reduced by approximately two-thirds. The smelter has a total capacity of 320,000 tons/year. Century Aluminum's second-quarter report indicated that the smelter was operating at full capacity. The estimated scale of the shutdown is 200,000 tons/year, and the resumption time is currently unclear.
For the global primary aluminum industry, the more significant bottleneck than the supply of raw materials lies in the release of primary aluminum smelting capacity, and further, in electricity costs. European primary aluminum production capacity, which was halted due to soaring energy prices following the Russia-Ukraine conflict, remains largely unable to resume operation as companies struggle to secure long-term, reasonably priced electricity supply contracts. While China boasts competitive electricity costs, the 45 million-ton capacity cap strictly limits capacity expansion. New global primary aluminum production capacity is primarily located in Indonesia and the Middle East, but inadequate power infrastructure hinders its commissioning, making it difficult to keep pace with the growth in aluminum demand.
Therefore, the shutdown of the Icelandic primary aluminum plant will create a supply gap in the region, undoubtedly refocusing market attention on the relatively rigid global primary aluminum supply.
2. Aluminum Ingots Gradually Enter Seasonal Destocking Phase
Driven by continued peak season demand, an increase in the industry's aluminum-to-water ratio, and a decrease in ingot casting volume, aluminum ingot inventories gradually reached a seasonal destocking inflection point in October.
Looking at the dynamic changes in aluminum ingot inventory, October saw an initial accumulation followed by a decrease. The first week of October included the National Day and Mid-Autumn Festival holidays, resulting in a post-holiday accumulation of 649,000 tons of aluminum ingot social inventory, an increase of 57,000 tons compared to September 30th before the holidays. This accumulation was slightly higher than during the 2024 National Day holiday, but still within the normal range for previous National Day holidays. The accumulation caused by the long holiday was relatively short-lived, and by October 16th, aluminum ingot inventory began to decline, showing a sustained destocking trend. According to SMM data, as of October 23rd, the total domestic electrolytic aluminum ingot social inventory was 618,000 tons, 12,000 tons lower than the same period in 2024. This inventory level is already at a low point compared to the same period in the past three years, but the inventory difference with previous years has narrowed. The industry's aluminum-to-water ratio, after falling to 73% in July, has been steadily rising since August. According to SMM data, as of the end of September, the industry's average aluminum-to-water ratio was 76.3%, an increase of 1.23% compared to August. Looking at weekly aluminum ingot outbound data, after the National Day holiday in October 2025, weekly outbound volume rebounded to the 130,000-140,000 tonnes range, higher than the same period in 2024, and significantly higher than the weekly outbound data in September 2025. The decrease in ingot casting and the increase in outbound volume jointly drove aluminum ingots into a destocking phase.
Regarding aluminum rods, according to SMM data, after the National Day holiday, on October 9th, aluminum rod inventory was 139,000 tons, an increase of 24,000 tons compared to before the holiday. By October 16th, aluminum rod inventory had also declined, and the downward trend continued. By October 23rd, aluminum rod inventory was 145,000 tons, nearly 40,000 tons higher than the same period in 2024, and also higher than the inventory levels for the same period in the past three years.
Based on historical data, the destocking of aluminum ingots after the peak season of "Golden September and Silver October" may continue until January of the following year. Considering that the destocking will begin later in 2025 and that high aluminum prices will suppress downstream purchasing sentiment, the destocking speed in 2025 is expected to be relatively slow, and the destocking period may also extend to January-February of the following year. Since aluminum ingot inventories have long been at historically low levels for the same period, inventory support for aluminum prices has been long-term. With the arrival of the destocking trend, the upward driving force of inventory on aluminum prices will be strengthened.
3. Medium- to Long-Term Macroeconomic Positive Factors Remain
Key strategic raw materials are undergoing value reassessment against the backdrop of global competition, industrial chain adjustments, and supply chain restructuring. Strengthened financial attributes and policy expectations are the main driving forces, making high volatility in the commodity market a new normal in 2025. As an important strategic metal, aluminum's financial attributes have also been amplified, and the resonance of macroeconomic and fundamental factors is driving aluminum prices to break through upwards.
On the one hand, the Federal Reserve restarted its interest rate cut cycle in September, and market liquidity is expected to further ease, thus providing a favorable macroeconomic environment for industrial metals, including copper and aluminum. Meanwhile, the market currently views this round of interest rate cuts as a preventative measure, sending a signal of economic support and improving demand expectations for aluminum. On October 24th local time, the latest data released by the U.S. Bureau of Labor Statistics showed that September inflation data was lower than expected across the board. The data showed that the U.S. Consumer Price Index (CPI) rose 0.3% month-on-month in September, lower than August's 0.4% and market expectations; the year-on-year increase was 3%, also 0.1 percentage points lower than expected, but still the highest level since June 2024. The U.S. September CPI has not yet risen significantly year-on-year, remaining relatively low overall, further increasing the probability of a Federal Reserve interest rate cut on October 30th. According to CME dollar interest rate futures, as of October 26th Beijing time, the market expects a 98.3% probability of a 25 basis point rate cut by the Federal Reserve on October 30th; and a 91.1% probability of another 25 basis point rate cut on December 11th, potentially lowering the upper limit of the federal funds target rate to 3.75%.
On the other hand, China is currently in the process of laying out a new "Five-Year Plan," which has also led to certain policy expectations in the market. The Fourth Plenary Session of the 20th Central Committee of the Communist Party of China was held in Beijing from October 20 to 23, 2025. The communique of the meeting was released on October 23 (hereinafter referred to as the "Communique"). The meeting reviewed and approved the "Suggestions of the CPC Central Committee on Formulating the 15th Five-Year Plan for National Economic and Social Development" (hereinafter referred to as the "15th Five-Year Plan Suggestions"), and set the tone for the economic situation and policy direction for the year. The Communique pointed out that the plenary session highly praised the significant achievements of my country's development during the "14th Five-Year Plan" period, pointed out six principles that must be followed for economic and social development during the "15th Five-Year Plan" period, clarified the main development goals, and made twelve major deployments. Among them, key development directions such as "accelerating high-level scientific and technological self-reliance and leading the development of new quality productive forces" and "accelerating the comprehensive green transformation of economic and social development and building a beautiful China" will also provide policy benefits to the end-use fields of aluminum, continue to promote the structural transformation of aluminum demand, and stimulate more new demand growth points. A more complete "15th Five-Year Plan" will be discussed at the National People's Congress and the Chinese People's Political Consultative Conference in March next year.
III.
Copper-Aluminum Ratio May Remain High
The copper-aluminum ratio is an important indicator measuring the relative strength of copper and aluminum prices, and it receives much attention in commodity markets and macroeconomic analysis. Its calculation formula is "copper price / aluminum price". Because copper and aluminum have highly overlapping applications in power, construction, and transportation sectors and exhibit a certain degree of substitutability, their price trends usually show a positive correlation. However, differences in their respective supply and demand fundamentals and financial attributes lead to cyclical fluctuations in the ratio. The highs and lows of its deviation from the historical average range often indicate potential "mean reversion" trading opportunities.
Looking back at data from the past five years, the copper-aluminum ratio has mostly fluctuated around a central level of 3.6-3.8. However, as of October 27, 2025, driven by a combination of macroeconomic sentiment and fundamentals, copper prices have risen by over 20%, significantly higher than the approximately 7% increase in aluminum prices. This divergence has caused the copper-aluminum ratio to rise rapidly to around 4.1, significantly deviating from the long-term average range, triggering market attention to a correction in the copper-aluminum ratio.
The copper-aluminum ratio typically recovers through two pathways: industrial substitution demand and financial market trading. However, both currently face practical constraints.
(1) Industrial Substitution: Clear Long-Term Support, Limited Short-Term Drivers
The economic effect of "aluminum replacing copper" is more pronounced when the copper-aluminum ratio is high. By stimulating demand for "aluminum replacing copper," it generates incremental expectations for aluminum consumption, thus providing long-term support for aluminum prices. However, the realization of "aluminum replacing copper" is limited by factors such as technical standards, product certification, and production line upgrades, resulting in a long realization cycle. Its substitution scope is also mostly limited to specific sectors such as electricity. Therefore, it is difficult to generate a demand shock sufficient to reverse market prices in the short term, limiting its immediate driving effect on ratio recovery.
(2) Financial Trading: Theoretically Feasible, but Facing Strong Resistance from Copper Prices
From the perspective of financial market behavior, shorting the copper-aluminum ratio is a direct force driving ratio recovery. However, the effectiveness of this strategy depends on a weakening copper price or a relatively strong aluminum price. Currently, positive macroeconomic sentiment and strong fundamentals such as tight copper mine supply are resonating, providing solid support for copper prices, and the market lacks effective short-selling forces. Against this backdrop, for the copper-aluminum ratio correction to materialize, its path will rely more on a rebound in aluminum prices, leading to market expectations that this correction will drive aluminum price increases. However, as mentioned earlier, the single "aluminum-for-copper" substitution logic at the industry level is insufficient in the short term, and a rebound in aluminum prices may require stronger fundamental support for price increases.
Although the copper-aluminum ratio has reached a high level, its correction logic provides support for aluminum prices and room for upward movement. However, we believe that the driving force behind the copper-aluminum ratio correction is structurally limited: the long-term nature of industry substitution and the strong resistance from copper prices in financial transactions jointly constrain the rapid release of correction momentum. Given the unresolved copper mine supply issue and the solid medium- to long-term bullish logic, copper prices are showing stronger upward momentum, making it more likely that the copper-aluminum ratio will remain at a relatively high level above 4.0 in the near term, rather than rapidly correcting downwards.
Therefore, when investors base their strategies on the copper-aluminum ratio, they should pay more attention to marginal changes in the fundamental supply and demand of aluminum itself, viewing these as key supporting factors rather than core drivers.
IV.
The Upward Trend in Aluminum Prices Remains Unchanged; Further Breakout Expected
Overall, the recent successful breakthrough and stabilization of aluminum prices above the 21,000 yuan/ton resistance level is a result of overseas supply disruptions, the start of seasonal destocking in China, and a confluence of positive macroeconomic sentiment.
Looking ahead, the characteristic of aluminum prices being "easier to rise than fall" will continue. The core support lies in the rigidity of the supply side. Unexpected production cuts at Icelandic smelters have once again highlighted structural problems such as power bottlenecks facing global electrolytic aluminum capacity release, while China's 45 million-ton capacity cap restricts supply elasticity in the long term. At the same time, ongoing structural transformation on the demand side and the loose liquidity environment brought about by the Fed's interest rate cut cycle provide medium- to long-term upward momentum for aluminum prices. In the short term, whether aluminum prices can continue to rise depends on the sustainability of destocking and the downstream acceptance of high aluminum prices. Although the copper-aluminum ratio is already high, its recovery path in the short term depends more on the catch-up of aluminum prices themselves, which requires a stronger marginal improvement in the fundamentals of aluminum as a driving force.
In summary, with rigid supply providing a safety net and positive macroeconomic expectations, aluminum prices are expected to maintain an upward trend. Future price movements will depend on the pace of inventory reduction and will be influenced by industry policy expectations and changes in macroeconomic sentiment. Shanghai aluminum is expected to show a volatile but upward trend, with resistance at 21,500-22,000 yuan/ton and relatively solid support around 20,500 yuan/ton. A bullish approach is recommended, and existing long positions can be held. In the long term, until the rigid supply problem in the aluminum market is alleviated, any periodic price pullbacks present buying opportunities.
(Editor: Jing Shui)
