Aluminum, among metal varieties, ranks second in the world in terms of output after steel and is one of the most widely used metals globally. Its price trend profoundly reflects the complex interaction among China's industrialization process, the global economic cycle, and industrial policy adjustments. As the first report in the series on the aluminum industry chain, we will first analyze the paradigm shift from "resource-driven" to "policy constraints + technological revolution" by reviewing the five rounds of cyclical fluctuations in Shanghai aluminum prices since 2002. Among them, the supply-side reform in 2016 and the explosion of the new energy industry in 2020 have become two key turning points. Promote the transformation of aluminum from traditional cyclical fluctuations to structural growth.
From a broad perspective, the price composition of electrolytic aluminum mainly consists of two parts: one is cost and the other is profit. For industrial enterprises, cost is a relatively important part of the price, because as manufacturing enterprises, the possibility of continuous operation below the cost line is extremely slim. In the second part, we mainly focus on the cost structure analysis of electrolytic aluminum to identify the parts of its cost structure that have a significant impact on prices, so as to conduct subsequent continuous tracking and analysis. For the cost of electrolytic aluminum, the highest proportion is alumina, followed by electricity cost. These two types of costs basically account for about 70% of the cost of electrolytic aluminum and are also the main factors affecting the cost of electrolytic aluminum. Next come anode cost, depreciation and expenses, as well as other cash costs, etc.
Recently, the profit per ton of electrolytic aluminum has once again risen above 4,000 yuan per ton. The last time was driven by the growth in demand under the global liquidity injection in 2021 and 2022. After experiencing the cost trough brought about by the sharp increase in alumina prices last year, this year, with the decline in alumina prices, electrolytic aluminum has once again entered an era of high profits. At present, China is still constrained by the 45 million tons capacity ceiling policy. The tight balance between supply and demand in the electrolytic aluminum industry is expected to continue, and the main upward risk on the cost side is relatively limited. Embrace the high-profit era of electrolytic aluminum.
Risk Warning
Major technological changes in the electrolytic aluminum industry; 2. The occurrence of risky events leads to significant changes in costs. 3. The supply and demand pattern of electrolytic aluminum has changed beyond expectations
The main text of the report
I. Cyclical Analysis of Aluminum Prices: Transition from Traditional Cyclical Fluctuations to Structural Growth
Aluminum, among metal varieties, ranks second in the world in terms of output after steel and is one of the most widely used metals globally. Its price trend profoundly reflects the complex interaction among China's industrialization process, the global economic cycle, and industrial policy adjustments. As the first report in the series on the aluminum industry chain, we will first analyze the paradigm shift from "resource-driven" to "policy constraints + technological revolution" by reviewing the five rounds of cyclical fluctuations in Shanghai aluminum prices since 2002. Among them, the supply-side reform in 2016 and the explosion of the new energy industry in 2020 have become two key turning points. Promote the transformation of aluminum from traditional cyclical fluctuations to structural growth.
Cycle One: 2002 -2008, the period of explosive demand under the dividends of globalization. This period marked the first complete cycle that the electrolytic aluminum market has experienced since the 21st century, characterized by "rapid growth - high-level fluctuations - sharp decline". From 2002 to 2006, it was a period of continuous increase. During this period, after China's accession to the WTO, the industrialization process accelerated, and the overall aluminum price was in an upward channel. The price of aluminum in Shanghai gradually rose from 13,000 yuan per ton. In 2006, the main contract of aluminum in Shanghai reached a historical high of 24,830 yuan per ton, with a cumulative increase of over 90%. (2) From 2006 to 2007, it entered a period of high-level fluctuation, basically remaining within the range of 18,000 to 23,000 yuan per ton. (3) In 2008, due to the financial crisis, the demand for industrial products plummeted sharply, and prices continued to fall. The main contract price of Shanghai aluminum dropped from over 20,000 yuan per ton at the beginning of the year to around 10,000 yuan per ton by the end of the year, a decline of 50%, marking the end of this cycle.
Cycle Two: 2008 -2015, a brief cycle of policy stimulus and a long bottoming-out period. This period marks the second complete cycle that the electrolytic aluminum market has experienced since 2002. It can be divided into two rounds as a whole: a brief cycle of policy stimulus and overcapacity from 2008 to 2011, and a long bottoming-out period of overcapacity and cost reduction from 2011 to 2015. From 2008 to 2011, there was a brief cycle of policy stimulus and overcapacity, which lasted about three years. China's "4-trillion-yuan" stimulus policy has become the core driving force behind this round of rebound, with infrastructure investment and real estate expansion leading to a rapid recovery in aluminum demand. From December 2008 to December 2009, it was the rebound stage. The main contract of Shanghai aluminum rose from the low point of 10,000 yuan per ton to break through 18,000 yuan per ton. After a brief pullback in 2010, it rose slowly in the second half of the year. In the second quarter of 2011, it soared again to 18,000 yuan per ton, forming a double top pattern, and then began to fall. From 2011 to 2015, after a long period of bottoming out due to overcapacity and cost decline, Shanghai Aluminum entered a four-year downward cycle. This stage presents the characteristics of "stepwise decline - brief rebound - hitting a new low". The main contradiction at this stage is the profound divergence between the disorderly expansion of production capacity and the slowdown in demand growth. Domestic electrolytic aluminum production capacity has soared while the growth rate of demand has declined during the same period. Meanwhile, the promotion of self-owned power plants in northwest regions such as Xinjiang has led to a reduction in electricity costs, further depressing the price center. At the macro level, China's economy has entered a new normal. The regulation of the real estate market has been strengthened. The demand in the traditional aluminum-consuming industry is weak. The Federal Reserve's exit from quantitative easing has led to a strengthening of the US dollar, and bulk commodities have collectively come under pressure. This cycle can be divided into three downward waves. From 2011 to 2012, it dropped from 18,000 yuan to 15,000 yuan. From 2013 to 2014, it fell from 15,000 yuan to 13,000 yuan. In 2015, it broke through the 10,000 yuan mark from 13,000 yuan, forming a "three steps in three years" downward pattern.
Cycle Three: From 2016 to 2020, capacity reshaping in supply-side reform and the impact of trade frictions and the pandemic. This period marks the third complete cycle that the electrolytic aluminum market has experienced since 2002. It can be divided into three rounds as a whole: the capacity reshaping brought about by supply-side reform from 2016 to 2017, the export obstruction caused by the escalation of Sino-US trade frictions from the end of 2017 to 2019, and the sharp decline in 2020 due to the global pandemic. From 2016 to 2017, the supply-side reform brought about a reshaping of production capacity, which was a period of continuous growth. Supply-side structural reform is the core driving force behind this round of increase. In 2017, the "Notice on Matters Concerning the Capacity Replacement of Electrolytic Aluminum Enterprises through Mergers and Acquisitions and Other Means" established a capacity ceiling policy of 45 million tons, eliminating about 3 million tons of backward capacity through capacity replacement. The supply rigidity under policy constraints pushed the price of Shanghai aluminum from less than 100 million yuan per ton at the end of 2015 to a peak of 17,250 yuan per ton. (2) From the end of 2017 to 2019, exports were hindered due to the escalation of Sino-US trade frictions. This period was a period of volatile decline. In 2018, the trade friction between China and the United States escalated, which hindered the export of aluminum materials. Coupled with the resumption of domestic production capacity, the price of aluminum materials experienced a phased pullback. However, the supply rigidity under policy constraints has formed a long-term support, and the price of Shanghai aluminum fluctuated and dropped from around 17,000 yuan per ton to around 14,000 yuan per ton. (3) The sharp decline in 2020 under the impact of the global pandemic. The global economy came to a standstill due to the COVID-19 pandemic in 2020. As a result, the price of aluminum in Shanghai dropped sharply in a short period of time, reaching this low point of 11,275 yuan per ton in late March 2020.
Cycle Four: From 2020 to 2022, it returned to a historical high amid policy stimulus and the energy crisis. After the short-term sharp drop in Shanghai aluminum prices caused by the COVID-19 pandemic, China was the first to recover and introduced extraordinary stimulus policies. The rebound in real estate and infrastructure demand drove up aluminum consumption. Meanwhile, global central banks injected liquidity to stimulate demand. As a result, Shanghai aluminum prices rose from 11,000 yuan per ton to above 24,000 yuan per ton in October 2021. And in March 2022, it peaked twice above 24,000 yuan per ton. Subsequently, as central banks around the world entered the interest rate hike cycle, global demand declined, and the price of Shanghai aluminum dropped from its peak to 17,000 yuan per ton. However, the overall price center remains at a relatively high historical level.
Cycle Five: From 2023 to the present, the New Energy Revolution and Cycle Reconstruction. Since 2023, Shanghai Aluminum has entered a structural transformation cycle driven by new energy, presenting the characteristics of "weak traditional demand - explosive new demand - strengthened policy constraints". At this stage, the demand structure of Shanghai Aluminum underwent a fundamental transformation. The new energy industry became the main growth point, while the supply continued to be constrained by the "capacity ceiling". This cycle is still in the evolutionary stage. So far, the main contract of Shanghai aluminum has basically been fluctuating within a wide range of 17,000 to 22,000 yuan per ton.
Ii. Analysis of the Cost Structure of Electrolytic Aluminum: Alumina comes first, followed by electricity cost
From a broad perspective, the price composition of electrolytic aluminum mainly consists of two parts: one is cost and the other is profit. For industrial enterprises, cost is a relatively important part of the price, because as manufacturing enterprises, the possibility of continuous operation below the cost line is extremely slim. In this section, we mainly focus on the cost structure analysis of electrolytic aluminum to identify the parts of its cost structure that have a significant impact on prices, so as to conduct subsequent continuous tracking and analysis.
The cost structure of electrolytic aluminum is rather complex, mainly due to its intricate and meticulous production process. In modern industry, aluminum is mainly produced through electrolysis, with alumina as the raw material and cryolite as the flux, using the cryolite-alumina molten salt electrolysis method. Therefore, its cost mainly consists of raw material cost, energy cost and other costs. The proportion of each cost element in the total cost varies and is influenced by multiple factors.
1. [Alumina - Raw Material Cost]. Alumina is the most crucial raw material in the electrolytic aluminum production process and accounts for a relatively high proportion of the cost of electrolytic aluminum, usually reaching 30% to 40%. Approximately 1.92 to 1.95 tons of alumina are consumed to produce one ton of electrolytic aluminum, and the cost variation has a crucial impact on the cost of electrolytic aluminum. The fluctuation of alumina prices has a significant transmission effect on the cost of electrolytic aluminum. For every 100 yuan increase in the price of alumina per ton, the cost of electrolytic aluminum increases by approximately 192 yuan per ton. When the price of alumina rises sharply, the production costs of electrolytic aluminum enterprises increase sharply and their profit margins are compressed. In the fourth quarter of 2024, the price of alumina soared, causing a significant contraction in the average profit level of the domestic electrolytic aluminum industry. Some enterprises even fell into a loss-making state. In this situation, some electrolytic aluminum enterprises may adopt measures such as reducing production to cope with cost pressure and minimize losses.
Due to its proximity to the most upstream resource end, bauxite, the price of alumina fluctuates more frequently. Its price is more likely to peak and fall rapidly in the short term. For instance, the average spot price of alumina in April 2024 was 3,300 yuan per ton. In the fourth quarter of 2024, it was affected by factors such as disruptions in the supply of bauxite from Guinea and stricter environmental protection and safety production requirements. The price soared to 5,700 yuan per ton, but then dropped rapidly to 3,300 yuan per ton in early 2025 due to oversupply. The fluctuation of alumina prices is mainly influenced by the following factors: (1) Bauxite supply. Bauxite is the main raw material for the production of alumina. The global distribution of bauxite resources is uneven, and Guinea, Australia, Brazil and other countries are the main suppliers of bauxite. China's dependence on imported bauxite is relatively high, approximately 70%. The supply situation of bauxite directly affects the production cost of alumina. (2) Alumina production capacity and output. The global capacity of alumina is constantly expanding. If the growth rate of capacity exceeds that of market demand, it will lead to an oversupply in the market and a decline in the price of alumina. In 2025, a large amount of new global alumina production capacity was added, leading to an oversupply and a sharp drop in alumina prices. (3) Energy cost. A large amount of energy, such as coal and electricity, is consumed in the production process of alumina. The fluctuation of energy prices directly affects the production cost of alumina. Take coal as an example. If the price of coal rises, the energy cost of alumina production enterprises will increase. To ensure a certain profit margin, enterprises will raise the price of alumina.
2. [Carbon anode, cryolite, fluoride Salt - Raw material cost]. Carbon anodes are also indispensable raw materials in the production of electrolytic aluminum. Their cost accounts for approximately 10% to 15% of the total cost of electrolytic aluminum. To produce one ton of electrolytic aluminum, about 0.45 tons of carbon anodes are consumed. Carbon anodes mainly use petroleum coke as raw material and coal tar pitch as binder. Petroleum coke is a by-product generated in the oil refining process, and its price fluctuations have a significant impact on the cost of carbon anodes. The fluctuation of carbon anode prices also has a certain impact on the cost of electrolytic aluminum. When the price of carbon anodes rises, the raw material procurement cost of electrolytic aluminum enterprises increases, and the cost of electrolytic aluminum rises accordingly. Although the cost of carbon anodes accounts for a relatively lower proportion of the total cost of electrolytic aluminum compared to alumina, in the context of fierce market competition, the price fluctuations of carbon anodes will also have a certain impact on the profits of electrolytic aluminum enterprises.
Fluoride salts in electrolytic aluminum production mainly include cryolite, aluminum fluoride, etc. Their cost accounts for a relatively small proportion of the total cost of electrolytic aluminum, approximately 3% to 5%. To produce one ton of electrolytic aluminum, approximately 50 kilograms of cryolite and 25 kilograms of dry-process aluminum fluoride are consumed. Although the cost proportion of fluoride salts is relatively small, they are indispensable in the electrolytic aluminum production process, and their price fluctuations will also have a certain impact on the cost of electrolytic aluminum. When the price of fluoride salts rises, the production costs of electrolytic aluminum enterprises will increase. However, due to its relatively small proportion, its impact on the cost of electrolytic aluminum is relatively weak. In actual production, electrolytic aluminum enterprises will optimize the production process, increase the utilization rate of fluoride salts, and reduce the consumption of fluoride salts per unit product to minimize the impact of fluoride salt price fluctuations on costs.
3. [Electricity Price - Energy Cost] Electricity costs also account for a relatively high proportion of the cost of electrolytic aluminum, usually reaching 30% to 40%, making it the most significant energy cost in the electrolytic aluminum production process. Generally speaking, the electricity consumption for producing one ton of electrolytic aluminum is relatively high, approximately 13,500 to 14,500 kilowatt-hours. The fluctuation of electricity prices has a direct and significant impact on the cost of electrolytic aluminum. For enterprises that rely on grid electricity, the proportion of electricity costs is relatively high, generally possibly above 40%. The electricity price of grid power is influenced by multiple factors, including regional differences, the supply and demand relationship in the power market, and policy regulation. Take the electrolytic aluminum enterprises in Yunnan as an example. During the wet season, electricity prices are relatively low, and their production costs of electrolytic aluminum are relatively low, making them highly competitive in the market. However, during the dry season, electricity prices rise, significantly increasing the production costs of enterprises and compressing their profit margins. To reduce electricity costs, some electrolytic aluminum enterprises are actively seeking stable power supply channels, such as signing long-term power supply agreements with local power grid companies to strive for more favorable electricity prices. Some enterprises have also increased their utilization of clean energy. For instance, hydropower and aluminum enterprises in Yunnan have made full use of the abundant hydropower resources in the local area to reduce the proportion of thermal power.
For electrolytic aluminum enterprises with their own power plants, the power supply cost is relatively stable and they have certain cost advantages. For such enterprises, the key to determining electricity prices lies in the cost of purchasing thermal coal. On average, about 400 grams of standard coal are consumed for one kilowatt-hour of electricity. To produce one ton of electrolytic aluminum, an average of 5 to 5.5 tons of thermal coal are consumed. The cost of coal accounts for approximately 70% to 75% of the cost of electricity production. Therefore, self-owned power plants mainly face the risk of fluctuations in coal prices. If coal prices rise sharply, the power supply cost of self-owned power plants will increase, thereby raising the production cost of electrolytic aluminum. To cope with the cost risks brought about by fluctuations in coal prices, self-owned power plant enterprises usually take a variety of measures. On the one hand, enterprises will enhance cooperation with coal suppliers and sign long-term and stable supply contracts to lock in coal prices. On the other hand, by optimizing the operation and management of power plants, improving the efficiency of coal utilization, and reducing the coal consumption per unit of power generation, the impact of fuel costs on the production cost of electrolytic aluminum can be reduced.
4. [Other Costs]. Other costs mainly include various types of costs such as labor costs, equipment depreciation, and environmental protection costs. Manufacturing expenses such as labor and depreciation vary relatively little among different regions where enterprises are located, as well as due to the production scale and management level of enterprises. The industry average is approximately 800 to 1,000 yuan per ton. As the global emphasis on environmental protection continues to increase, the proportion of environmental protection costs in the cost of electrolytic aluminum is also gradually rising.
Based on the above analysis, for the cost of electrolytic aluminum, the highest proportion is alumina, followed by electricity cost. These two types of costs basically account for about 70% of the cost of electrolytic aluminum and are also the main factors affecting the cost of electrolytic aluminum. Next come anode cost, depreciation and expenses, as well as other cash costs, etc.
Iii. Profit Analysis of Electrolytic Aluminum: Embracing the Era of High-Profit Electrolytic Aluminum
Recently, the profit per ton of electrolytic aluminum has once again risen above 4,000 yuan per ton. The last time was driven by the growth in demand under the global liquidity injection in 2021 and 2022. After experiencing the cost trough brought about by the sharp increase in alumina prices last year, this year, with the decline in alumina prices, electrolytic aluminum has once again entered an era of high profits.
At present, China is still constrained by the 45 million tons capacity ceiling policy. Currently, the operating capacity of electrolytic aluminum is close to 44 million tons, and the actual space for additional capacity is rather limited. Overseas, although some countries have plans for new production capacity, they are facing problems such as bauxite supply, fluctuations in energy prices, and policy changes, which have led to a slow progress in capacity commissioning. On the demand side, there is a perfect transition between new and old demands. Although the demand in the construction sector is under pressure from the adjustment of the real estate market, it will still maintain a certain scale. In the transportation sector, the rapid development of new energy vehicles and rail transit will drive demand growth. The trend of automotive lightweighting has led to a continuous increase in the amount of aluminum used per vehicle. With the acceleration of the global energy transition, the power industry will continue to drive the demand for electrolytic aluminum through the construction of ultra-high voltage transmission, smart grids and supporting facilities for new energy power generation. Overall, the tight balance between supply and demand in the electrolytic aluminum industry is expected to continue, and the upward risks on the main cost side are relatively limited. Embrace the high-profit era of electrolytic aluminum.
Risk Warning
Major technological changes in the electrolytic aluminum industry;
2. The occurrence of risky events leads to significant changes in costs.
3. The supply and demand pattern of electrolytic aluminum has changed beyond expectations.
