What happens to aluminium when supply, energy and carbon collide: A market simultaneously facing scarcity, costs and power risks

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The global primary aluminium industry has entered 2026 with a very different market condition from the one that defined the past decade. What was once a story of supply abundance, Chinese expansion and cyclical price swings is now turning into one of scarcity, geopolitical fragmentation and carbon-driven trade barriers.

At the same time, emerging supply hubs such as Indonesia and Guinea are grappling with resource protection, infrastructure tailbacks and rising power needs, while supply shocks in Mozambique, Iceland and the downstream sector are constraining the market further.

China’s 45 million tonne ceiling has become the market’s hard limit

One of the heaviest and most impactful events in the global aluminium market is the enforcement of China’s 45 million tonne primary aluminium production cap. For nearly two decades, the global balance between supply and demand was shaped by China’s relentless capacity additions, with domestic output rising from 12.6 million tonnes in 2007 to nearly 45 million tonnes by the end of 2025. By early 2026, however, that expansionary phase had effectively ended. The 45 million tonne ceiling, introduced in 2017 to curb chronic oversupply and align the sector with energy and carbon goals, has become a hard limit.

By the second quarter of 2026, China’s operating capacity will be over 45 million tonnes, with utilisation rates above 97 per cent. That leaves very little room for further domestic growth.

Instead of being the world’s incremental supply provider, it is increasingly acting as a domestic balancer and, in some cases, a net importer of primary aluminium. Net exports of primary aluminium from China have already fallen by around 700 thousand tonnes year-to-date in early 2026, creating a supply gap in international markets that had previously been filled by the Chinese surplus.

The cap has also triggered a change in corporate strategy. Chinese aluminium majors, unable to expand freely at home, are exporting capital to Southeast Asia, especially Indonesia, in search of new smelting capacity. Even within China, expansion is now tied to ‘capacity replacement’, where new units can only come online if equivalent high-cost, carbon-intensive capacity is shut elsewhere.

And that has pushed the industry toward provinces such as Yunnan, where hydropower is more readily available, but it has also introduced a new risk, i.e. seasonal hydropower shortages. In 2026, drought conditions and weather-dependent electricity are themselves becoming supply-side risks.

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Indonesia’s downstream push is colliding with physical reality

If China is running into a ceiling, Indonesia is running into the limits of scale. The country’s policy to ban raw bauxite exports and force domestic refining and smelting was meant to build a new industrial base. It has succeeded in attracting capital, but in 2026, the scale of the project pipeline has become so large that even state-owned PT Inalum is calling for a moratorium on further alumina refinery and smelting expansion.