Aluminium output in China rose above official production caps in the first quarter, supported by high prices and ample alumina supply. Data for production is expected as early as Monday.
The rise in output likely continued in April, based on higher Chinese aluminium exports. Supply from the Gulf region is reported to be struggling to reach the market, which may limit the effect of China’s output on prices.
Market focus is also turning to inventory levels as demand remains robust, including from Chinese industry. Higher Chinese production may ease some shortages, but a supply gap may still remain.
A Swiss-based commodities trader forecasts a supply deficit of 2 million tons this year. It also warns inventories could fall to “paper-thin” levels by the end of the year.
If this happens, supply bottlenecks may occur. This could lead to pronounced price volatility.
We see that even with Chinese production running hot, it’s not enough to fill the supply gap from disrupted Gulf shipments. A potential 2 million ton supply deficit is being factored in for this year. This sets the stage for inventories to drop to critically low levels by the end of 2026.
This view is supported by the latest inventory data, as LME registered aluminum stocks have fallen below 400,000 tonnes, a level we haven’t seen since late 2023. This steady draw on exchange inventories confirms the market is tightening despite higher Chinese exports. We understand the ongoing logistical issues impacting supply from the Gulf are a key part of this squeeze.
Given this outlook for the coming weeks, we expect significant price swings and a clear upward bias. Traders should consider positioning for higher volatility by looking at long-dated call options to capture potential price spikes toward the end of the year. The market structure suggests implied volatility may be undervalued relative to the risk of a real supply bottleneck.
The demand side of the equation remains solid, which is why the extra Chinese metal is being easily absorbed. We saw this in the April Caixin Manufacturing PMI for China, which beat forecasts at 51.4, indicating resilient industrial activity is continuing. This underlying strength is preventing the market from rebalancing.
Looking back from our perspective in 2025, we saw a similar dynamic play out in Europe in 2022 when energy costs forced smelter shutdowns and sent prices soaring. The current situation carries echoes of that period. This historical precedent suggests any new shock to the system could have an outsized impact on price.
