Commerzbank analysts Barbara Lambrecht and Volkmar Baur report mixed trends in China’s metals market, with aluminium production rising while demand remains weak. They note that domestic supply is increasing faster than domestic consumption.
In April, China’s primary aluminium output was 3.1% higher than a year earlier, after a 2.7% rise in March. Daily production reached a record 129,000 tonnes.
China Aluminium Supply Outpaces Demand
Strong margins, supported by higher aluminium prices and lower alumina costs, are pushing output above the government’s annual cap of 45 million tonnes. April’s production rate, annualised, equated to 47 million tonnes.
China increased aluminium exports in April, but domestic inventories still rose as demand did not keep pace. Shanghai Metal Markets data shows inventories have doubled this year to 1.37 million tonnes, the highest level in six years.
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The divergence between Chinese aluminium production and its domestic demand creates a clear opportunity for us. Record output, driven by high margins, is flooding the market at a time when internal consumption is not keeping up. This is demonstrated by inventories on the Shanghai Futures Exchange, which have more than doubled since the start of the year and are sitting near multi-year highs.
Weak Property Demand Weighs On Consumption
This supply glut is happening while a key source of domestic demand, the property sector, remains weak. Recent data for April 2026 showed that property investment in China fell by another 9.8% year-on-year, continuing a long-term slump. Although manufacturing PMI data hovers just above the 50-point mark indicating expansion, the profound weakness in construction overrides this positive signal for metal consumption.
Given this inventory overhang, we believe the path of least resistance for aluminium prices is downwards in the coming weeks. The current LME price, which has been hovering around $2,550 per tonne, does not seem to reflect the weak fundamentals on the ground in China. We see this as an opportune moment to initiate bearish positions.
Therefore, traders should consider buying put options on aluminium futures to bet on a price decline while limiting risk. A drop towards the $2,400 level seems plausible as the market digests the full scale of the inventory build-up. This strategy allows us to profit from a potential downturn without the unlimited risk of an outright short futures position.
We must, however, watch for any signs of government intervention to enforce the 45 million ton annual production cap. As we saw with similar policy announcements back in 2025, any forced production cuts could cause a sharp, if temporary, price rally. Monitoring statements from Chinese authorities is therefore crucial to managing the risk of our short positions.
