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View all search resultsCapped at home, China extends its aluminum dominance abroad
China's aluminum producers are increasingly turning to developing smelters abroad against a capacity cap of 45 million tonnes at home, extending the country's industry dominance further afield.
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A worker checks an aluminum sheet roll on Feb. 11, 2025, at an aluminum processing factory in Huaibei, Anhui, China. (AFP/-)
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hina's aluminum smelters have been running red-hot this year. The Shanghai aluminum price is nudging three-month highs, raw material costs are historically low, and margins are strong. Every producer is incentivized to operate their plant at maximum capacity.
Indeed, national output has exceeded Beijing's 45-million-tonne capacity cap for the past couple of months as smelters flex their full production potential. The mandated ceiling, however, remains in place. Chinese producers have accepted that reality and are now investing heavily in smelter projects abroad.
While President Donald Trump complains the United States "desperately" needs more aluminum, the world's largest producer is consolidating its dominant position in the global supply chain.
China's capacity cap dates back to 2017, when the sector was in the throes of a chaotic boom. Everyone, it seemed, wanted to build their own aluminum smelter, placing ever greater stress on the country's power system. Beijing drew a 45-million-tonne line in the sand.
By the end of the year, the authorities had halted 5.37 million tonnes of "illegal" capacity and 6.19 million tonnes of "noncompliant" capacity, according to Wen Xianjin, vice chairman of the China Nonferrous Metals Industry Association. The new rule was that if you wanted to build a greenfield smelter, you had to close an old one with the same capacity.
The regulations have been rigorously enforced ever since and have led to a collective upgrade of smelter technology as new plants replaced less efficient ones.
That technology is now being flexed.
Aluminum smelter capacity, to quote consultants AZ Global, "is not an immutable physical limit". A series of operating improvements can easily allow actual output to rise above nameplate capacity.
Such collective capacity creep explains why national output has been running above the 45-million-tonne mark since March. AZ Global estimates that China's smelters operated at 99.7 percent of their effective capacity of 45.26 million tonnes in August.
The irony is that China's smelters are benefiting from both their own capacity cap and the absence of a complementary limit on domestic alumina production. The core input to the smelting process is in chronic oversupply and the price is correspondingly at bombed-out levels.
Whether China's smelters can sustain these levels of capacity utilization is a moot point, but it is clear that any production upside is now highly limited. Chinese producers understand that if they want to expand, they now have to go abroad.
Investment has primarily flowed into Indonesia, where new aluminum smelters can be sited in the same Chinese-built industrial parks used to process nickel. Tsingshan Group, the powerhouse behind Indonesia's nickel boom, has teamed up with Chinese aluminum producers Huafon Group and Xinfa Group to build the new Hua Chin and Juwan smelters, respectively.
Existing power and logistics infrastructure has enabled rapid construction. Hua Chin was commissioned last year with 480,000 tonnes of annual capacity. It applied in May to list its "HCAI" brand with the London Metal Exchange.
Juwan shipped its first aluminum to the US in March. PT Alamtri Resources Indonesia, in which China's Zhejiang Lygend Mining holds a minority interest, did the same in June.
Chinese aluminum smelter projects are also cropping up further afield. In Kazakhstan, Xinfa is preparing a full-cycle industrial park with planned aluminum capacity of 2.4 million tonnes per year. Meanwhile, East Hope Group is working on a huge integrated project running from bauxite through alumina to aluminum.
In Angola, a Chinese consortium led by Hebei Huatong Wire and Cables Group is backing a new smelter in the Barra do Dande free trade zone. The first 120,000-tonne phase was constructed using equipment transferred from China, likely from an older smelter that was sacrificed for a new one and as such an international application of Beijing's capacity swap mandate.
The smelter's location on the Atlantic extends China's aluminum reach further into Western markets.
The country already accounts for around 60 percent of global production, a ratio that has crept up to 63 percent due to the loss of Gulf output in the Iran war. The new generation of Chinese-backed smelters will cement that dominance as long as the West struggles to find a similarly sized response.
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The writer is a Reuters columnist. The views expressed are personal.
