China Aluminum Market H1 2026 Review and H2 Outlook [SMM Analysis]

In H1 2026, SHFE aluminum prices followed a "higher earlier, lower later" trajectory. In Q1, macro expectations for US Fed interest rate cuts intertwined with Middle East geopolitical conflicts, driving aluminum prices to surge to historical highs. Entering Q2, as the US strong-dollar policy stance was confirmed, Middle East supply disruptions marginally eased, and domestic downstream consumption in China entered the off-season, the aluminum price center continued to shift lower.

Looking ahead to H2, macro headwinds from a strong US dollar and overseas liquidity concerns will continue to weigh on nonferrous metals valuations. Supply side, high aluminum prices are stimulating capacity release; China's operating capacity is expected to continue rising MoM, while newly commissioned capacity in the Middle East and Indonesia ex-China gradually ramps up. Demand side, the pace of domestic demand recovery remains mild, and while aluminum semis export orders on hand can still provide a floor, expectations for new orders are weakening. Overall, the SHFE aluminum price center is expected to move further down in H2, with the full year exhibiting a "higher earlier, lower later" pattern.

I. H1 2026 SHFE Aluminum Market Review (by Phase)

1.1 Q1: Macro and Geopolitical Dominance, Aluminum Prices Retreat After Rapid Rise

In Q1 2026, SHFE aluminum price movements were primarily driven by macro factors and overseas supply disruptions, with seasonally weak fundamentals becoming a secondary concern.

January: Macro Interest Rate Cut Expectations and Capital Inflows Pushed Aluminum Prices Higher

Fundamentals: The Chinese New Year off-season, combined with a demand vacuum, led to a continuous buildup of aluminum ingot social inventory. By end-January, SMM aluminum ingot social inventory had risen to 782,000 mt, the highest for the same period in nearly three years. High aluminum prices squeezed downstream profit margins, causing some processing enterprises to reduce operational willingness, and procurement demand for primary aluminum weakened.
Macro Front: The US Fed was in an interest rate cutting cycle, the US dollar index weakened significantly, and massive capital flowed into commodity futures markets. Coupled with supportive domestic consumption promotion policies, these factors jointly underpinned aluminum prices. In January, the average SMM A00 aluminum price was about 24,086 yuan/mt, the highest monthly average in H1.

February: Cooling Rate Cut Expectations, Aluminum Prices Consolidated on a Weak Note

Fundamentals: The Chinese New Year holiday caused a sharp drop in procurement demand from downstream processing enterprises, while aluminum smelters' willingness to cast ingots increased, leading to further accumulation of aluminum social inventory. After the Chinese New Year, SMM aluminum ingot social inventory rose to 1.108 million mt, and the elevated inventory level made it difficult to provide effective upward support for aluminum prices.

Macro Front: Cooling rate cut expectations in the US pushed the US dollar index higher, and profit-taking capital outflows triggered a pullback in aluminum prices, reinforcing the weak consolidation trend. In February, the average SMM A00 aluminum price retreated to 23,385 yuan/mt, down about 700 yuan/mt MoM.

March: Repeated tug-of-war between Middle East supply disruptions and demand-side restraint

In March, the market’s core trading narrative repeatedly swung between supply-side disruptions in the Middle East and demand-side restraint, intensifying the tug-of-war between longs and shorts and driving aluminum prices into a volatile "surge—pullback—rebound" pattern.

Supply side: Production cut events overseas occurred frequently. Mozal shifted into maintenance mode; Qatar Aluminium maintained a 60% operating rate and halted further production cuts; Aluminium Bahrain idled lines 1, 2, and 3, with potential for more cuts; EGA’s aluminum smelter facilities suffered severe damage, with market expectations of large-scale production cuts. According to SMM estimates, including cuts at the Mozambique aluminum smelter, nearly 4 million mt of aluminum capacity outside China had been taken offline. Sustained concerns over tightening supply outside China became the core driver behind periodic price rises.
Geopolitical risks: The Middle East conflict continued to escalate, and the shipping safety of the Strait of Hormuz drew broad market attention, injecting persistent geopolitical risk premiums into aluminum prices.
Demand side: Stagflation worries heightened and risk-off sentiment emerged; high aluminum prices curbed downstream procurement, while elevated energy and freight costs squeezed processing enterprise profitability, indirectly restraining the release of demand.

In March, the SMM A00 aluminum average price rebounded to 24,386 yuan/mt, the second-highest monthly average level in H1, but with markedly wider consolidation.

1.2 Q2: Expanding supply and marginally weakening demand shifted the aluminum price center lower

In Q2, as high aluminum prices spurred higher capacity utilization rates in China and the impact of overseas production cuts was gradually absorbed, market attention shifted back to China’s fundamentals. The center of SHFE aluminum dropped from around 24,665 yuan/mt in April to roughly 23,769 yuan/mt in June, briefly dipping to the 22,665 yuan/mt level in late June, a fresh low for the year.

Supply side: High prices prompted aluminum enterprises to raise capacity utilization rates, boosting China’s production; the impact of production cuts in Mozambique and the Middle East gradually materialized, weakening the SHFE/LME price ratio. From June to July, resumption expectations emerged for curtailed capacity in the Middle East, and new Indonesian projects began being energized and ramping up, heightening expectations of growing aluminum supply outside China. Domestically, according to market communication, China’s aluminum production posted around a 3.5% YoY growth rate in January-May.
Demand side: High prices weighed on end-use demand in China, but with LME outperforming SHFE, aluminum semis exports increased, supporting domestic primary aluminum demand. According to General Administration of Customs data, China’s cumulative exports of unwrought aluminum and aluminum semis over January-May totaled 2.685 million mt, up 10.4% YoY. April alone saw monthly exports of 598,000 mt, a more-than-one-year high; May exports were 632,000 mt, a YoY increase of 15.5%. Strong performance in aluminum semis exports effectively filled the gap in China's domestic consumption.
Inventory side: Q2 saw significant destocking in the market. Social inventory peaked at 1.465 million mt in early May and declined to 1.165 million mt by end-June, a cumulative destocking of around 300,000 mt. The destocking pace steepened markedly, with weekly warehouse withdrawals spiking to 170,000 mt at one point, a new high for single-week withdrawals in nearly four years.

2. Analysis of Supply-Demand Fundamentals

2.1 Supply side: High margins boosted operating rates while new projects ramped up, keeping aluminum supply ample in H1

In H1 2026, persistently high industry smelting margins significantly amplified output elasticity, serving as the core driver behind ample supply in the first half. On one hand, strengthening aluminum prices kept per-mt profit in a healthy range, driving aluminum enterprises to run at maximum operating rates. On the other, new projects that started from end-2025 through H1 2026 progressively ramped up to contribute steady incremental volumes month by month. Continuously realized incremental supply from new capacity ramp-ups further supported domestic primary aluminum output. Driven by these two factors, China's total aluminum production rose steadily in H1, keeping raw material supply broadly ample.

2.2 Demand side: weak domestic demand, with exports providing critical support

In H1 2026, China's aluminum demand showed a structural divergence between "weak domestic, strong external" demand. Elevated aluminum prices continuously suppressed downstream purchases, while aluminum semis exports benefited from a recovering SHFE/LME price ratio and performed strongly. According to China Customs data, China exported 1.435 million mt of aluminum semis in January-May 2026, up 13.7% YoY; May exports alone reached 320,000 mt, up 14.7% YoY. Aluminum semis exports stayed high in the first five months, effectively supplementing domestic channels for absorbing primary aluminum. Behind the high growth in aluminum semis exports, the core driver was the "LME outperforms SHFE" pricing dynamic: overseas supply tightness expectations due to factors such as Middle East production cuts, while in China high inventory pressure kept the SHFE/LME price ratio weakening, creating a notable profit window for aluminum semis exports.

2.3 Inventory: H1 buildup to multiyear highs, rapid destocking kicked off in Q2

In H1 2026, China's aluminum social inventory passed through three stages: "rapid buildup—consolidating at highs—steep destocking". Early in the year, inventory accumulated amid Chinese New Year off-season and demand suppression from elevated prices, reaching a recent-year high of 1.465 million mt in early May. Subsequently, with downstream resumption and export volumes ramping up, inventory began rapid destocking. The destocking slope steepened markedly in Q2. The core reason behind the accelerated destocking was the concentrated release of aluminum semis exports combined with a concentrated release of downstream restocking demand after production resumption.

III. H2 Outlook

3.1 Macro Front: Strong US Dollar Suppresses Valuations

The US maintains a strong dollar policy stance, and the US dollar index fluctuating at highs will continue to suppress valuations of non-ferrous metals.
The geopolitical risk premium in the Middle East is gradually fading, shipping expectations in the Strait of Hormuz are improving, and concerns about liquidity outside China are easing, which will pose a bearish factor for aluminum prices in the medium and long term.

3.2 Supply Side: New Investments and Production Resumptions Outside China Advance Together

In markets outside China, some projects in the Middle East have been gradually resuming production, and the pace of commissioning new capacity and capacity ramp-up outside China has accelerated.

3.3 Demand Side: Support from Export Orders Weakens

In the short term, orders on hand can still underpin aluminum semis exports. However, as the price spread between Chinese and overseas markets narrows, expectations for new export orders for some aluminum semis are starting to weaken. Medium and long-term export growth faces downside risks. Key focus should be on peak-season consumption in China and changes in export orders.

IV. Overall Assessment

Overall, the SHFE aluminum market in H2 2026 will face dual pressures from “macro headwinds and supply release.”

[Data source statement: All data other than public information are processed by SMM based on public information, market communication, and SMM’s internal database models. They are for reference only and do not constitute any investment advice.]

Data source: SMM