China's aluminum industry is undergoing a significant transformation: domestic electrolytic aluminum production capacity is constrained by a 450 million ton policy cap, but the enterprises enjoy high profits and the raw material costs are at historically low levels, prompting the smelters to maximize their capacity utilization as much as possible.
As the domestic expansion space becomes increasingly limited, Chinese aluminum enterprises have begun to shift their new production capacity and industrial chain investments overseas, especially to regions with better resources and energy conditions such as Indonesia, Kazakhstan, and Angola.
This trend implies that although China is constrained by the domestic production capacity ceiling, it may further consolidate its global dominance in the aluminum industry through overseas investment.
In 2017, China's aluminum industry experienced uncontrolled expansion, with a large number of new smelting capacity projects putting pressure on the power system. The government then set a 450 million ton production capacity ceiling and closed illegal and non-compliant capacity, while establishing a "capacity replacement" system, that is, new electrolytic aluminum projects must simultaneously eliminate an equivalent amount of old capacity.
Over the past years, this system has been strictly implemented, and the industry has also undergone technological upgrades, with new and efficient electrolytic cells gradually replacing outdated equipment. However, the production capacity ceiling only limits the nominal capacity, not the absolute output. Through technological transformation, equipment optimization, and improving operational efficiency, the actual output can still exceed the nominal capacity to a certain extent.
Since this year, China's electrolytic aluminum production has exceeded the 450 million ton level for several consecutive months. The consulting firm AZ Global estimates that in August, the actual operating rate of Chinese aluminum smelters reached 99.7%, corresponding to an effective production capacity of approximately 45.26 million tons, indicating that domestic production capacity utilization has approached its limit.
More importantly, there are no similar strict production capacity restrictions for alumina. Domestic alumina has long been in a state of oversupply, keeping the prices of core raw materials for aluminum at extremely low levels. In the context of relatively strong aluminum prices, low raw material costs further expand the production margins, prompting enterprises to maintain full-scale production.
However, this model cannot continue indefinitely. The domestic production capacity expansion space is limited, and if enterprises continue to pursue scale growth, they must seek overseas opportunities. Indonesia has become one of the most important investment destinations for Chinese aluminum enterprises. With the previous industrial parks, power, and logistics infrastructure constructed by Chinese enterprises, new electrolytic aluminum projects can be quickly implemented.
Projects jointly constructed by Tsingshan Group and Huafeng Group, Xinfa Group, etc., have already been put into operation or started to supply aluminum products to overseas markets, and some products even entered the US market, indicating that China's aluminum industry is directly expanding its international market influence through overseas production.
The overseas layout of Chinese enterprises is not limited to Indonesia. In Kazakhstan, Xinfa Group plans to build a comprehensive industrial park with an annual aluminum production capacity of 2.4 million tons, and Dong Hope Group is promoting an integrated project from bauxite, alumina to electrolytic aluminum.
In Angola, the first 120,000-ton aluminum production capacity of the electrolytic aluminum project constructed by Chinese enterprises has been completed, and some equipment was directly transferred from China. This actually extends China's long-term accumulated technology, equipment, and capacity replacement experience to overseas.
As a result, the global aluminum supply pattern is changing. Currently, China accounts for approximately 60% of global aluminum production, and due to factors such as the damage to supply in the Gulf region caused by the Iran war, this proportion even rose to approximately 63%.
In the future, the competition in the aluminum industry will increasingly shift from "who has more domestic production capacity" to "who controls more resources, energy, smelting capacity, and overseas supply chains". China's domestic production capacity reaching its peak does not mean that the Chinese aluminum industry stops growing; instead, it may further enhance its globalization level.
