With the advent of the peak season, aluminum prices are expected to strengthen in stages

At the beginning of March 2025, aluminum prices will start to rise again after a short period of consolidation. The driving logic of the strong operation of aluminum prices mainly stems from two aspects: on the one hand, the growth of electrolytic aluminum supply is limited by the domestic production capacity ceiling; On the other hand, the peak consumption season in the first half of the year is approaching, and the operating rate of aluminum downstream processing enterprises is gradually rebounding. It is expected that the supply and demand situation of electrolytic aluminum will improve in March, which will support aluminum prices to maintain a strong trend.

Smelting profits rebounded significantly

In February 2025, with the successive launch of new alumina production capacity this year, the weighted average price of domestic alumina decreased by about 30% month-on-month, and the proportion of electrolytic aluminum cost fell to about 40%, a decrease of 9 percentage points from before. This has alleviated the pressure on the cost side of electrolytic aluminum, and the smelting profit has shown a significant recovery trend. According to the SMM A00 aluminum spot monthly average price accounting, in February, the average complete cost of China's electrolytic aluminum industry including tax was about 16,910 yuan/ton, down 15.4% month-on-month, and the average profitability of electrolytic aluminum plants was about 3,570 yuan/ton.

At the beginning of March, China's domestic electrolytic aluminum production capacity was about 45.81 million tons, the electrolytic aluminum operating capacity was about 43.64 million tons, and the comprehensive operating rate of the aluminum smelting industry reached 95.3%, up 0.07 percentage points month-on-month and 2.26 percentage points year-on-year. At present, with the obvious recovery of electrolytic aluminum profits, enterprises in Sichuan, Guangxi and other places in the southwest region have resumed production after the Spring Festival. At the same time, the replacement and upgrading project of an electrolytic aluminum plant in Qinghai in the north will also be energized and opened, promoting the continuous slight growth of domestic electrolytic aluminum operating capacity. It is estimated that the annualized operating capacity of electrolytic aluminum will reach 43.85 million tons by the end of March. At present, although the supply side of electrolytic aluminum in China has maintained a slight growth, it is limited by the domestic production capacity ceiling of 45.8 million tons, and there is basically no large-scale new compliance capacity index for electrolytic aluminum enterprises. It is estimated that the new domestic electrolytic aluminum production capacity will only be 450,000 tons in 2025, and most of the remaining production capacity will be replacement capacity, and the future capacity increase of electrolytic aluminum supply side will be extremely limited. Limited growth on the supply side will provide strong support for aluminum prices.

The downstream start is improving

At the beginning of March 2025, the total social inventory of aluminum ingots and aluminum rods in China's mainstream consumption areas has decreased slightly month-on-month. As of March 6, the latest domestic social inventory of electrolytic aluminum ingots was about 871,000 tons, down 15,000 tons from Monday, a slight decrease of 2,000 tons from last week, and the volume of aluminum ingots out of the warehouse in the past week was 128,300 tons, an increase of 9,200 tons from the previous week. Recently, the volume of aluminum ingots and aluminum rods from the consumption area has continued to rise, indicating that the demand of downstream processing enterprises is picking up significantly.

In March, with the arrival of the traditional peak season of "Golden Three Silver Four", the operating rate of China's aluminum downstream processing industry generally showed a moderate recovery trend. This is mainly due to the favorable macro policies and the approach of the traditional consumption season, which has driven the demand of the aluminum terminal industry to pick up. Specifically, there is a certain differentiation in the recovery degree of the downstream sectors of aluminum: industrial profiles, plates, strips and foils and other sectors benefit from the high prosperity of the terminal field, and the industry performance is outstanding; However, building profiles, aluminum cables, aluminum alloys and other sectors are still constrained by inventory pressure and insufficient demand. According to statistics, in early March, the operating rate of leading aluminum downstream processing enterprises rose by 1.1 percentage points to 59.8% weekly. Among them, aluminum strip benefited from the rebound in demand for new energy vehicles and batteries, and the operating rate rose to 68.6%, which is expected to further increase in the peak season; Driven by the increase in orders for air conditioning foil and battery foil, the operating rate of aluminum foil has increased steadily; Aluminum cables support the resumption of production of the industry due to the replenishment needs of terminal enterprises; In the aluminum profiles, the demand for industrial profiles is good, the performance of the leading enterprises in the building profiles is acceptable, and small and medium-sized enterprises are still under pressure; The recovery momentum of recycled aluminum alloy is weak due to the inventory backlog caused by weak downstream demand. As the peak season approaches, the consumption expectations of the terminal industry have a significant impact on the start of downstream enterprises.

On the whole, the peak consumption season of downstream consumption in March is gradually approaching, and the terminal consumption of electrolytic aluminum will continue to heat up, and at the same time, aluminum prices are expected to perform well in the peak season under the condition of limited incremental increase on the aluminum supply side. (Author's Affiliation: Zhonghui Futures)