China aluminum prices trended lower through late May, with Mysteel regional A00 ingot averages retreating between 1.38% and 1.45% month-on-month. The market remained locked in a tug-of-war between macro headwinds and fundamental resilience. While persistent rate hike expectations capped upside potential, continuous inventory destocking anchored the price floor, limiting the downside. Heading into June, prices are expected to remain under pressure from the prevailing macro backdrop; however, tightening supply-demand dynamics will likely contain the decline within a limited range.
Macro headwinds intensify
On the macro front, sentiment experienced a sharp shock. Mid-month, both U.S. April inflation data and PPI significantly exceeded expectations, triggering a rapid cooling of market rate cut bets and a sudden surge in rate hike expectations. Rising U.S. Treasury yields fueled concerns over liquidity tightening and suppressed risk appetite, emerging as the dominant macro bearish factor and weighing on aluminum prices.
In the LME market, supply shortage dominated overseas performance throughout the month. Production cuts in the Middle East led to sustained overseas inventory drawdowns, reinforcing supply tightening expectations, which drove LME aluminum to accelerate upward and continuously hit new highs. Domestically, fundamentals continued to send positive signals. Traders' aluminum inventories maintained a destocking trend. Downstream demand recovered steadily, and export performance showed growth.
Output rises on capacity ramp-ups
According to Mysteel's full-sample survey of Chinese primary aluminum producers, China's preliminary primary aluminum production for May 2026 was 3.87 million tonnes, up 3.18% year-on-year and 3.47% month-on-month. The average daily output in May was 124,800 tonnes, up 3,00 tonnes month-on-month (based on 31 actual production days). Operating capacity edged higher during the month, with incremental output mainly from project ramp-ups and restarts in northern and northwestern regions, while production in other regions remained relatively stable.
The aluminum scrap market in May saw tight supply and prominent cost support. The average spread between primary aluminum and aluminum scrap in May 2026 was 1,224.62 yuan/tonne. On the supply side, the implementation of the "reverse invoicing" policy intensified significantly, with strict enforcement targeting issues such as insufficient identification documents and expired grace periods across multiple regions; some enterprises in Jiangxi and Anhui have successively paid back taxes. Coupled with the impending phase-out of local tax rebates, corporate compliance costs rose markedly, leading to production cuts or shutdowns in some areas and tightening the circulation of aluminum scrap.
On the demand side, inventory levels at downstream secondary aluminum enterprises declined, and restocking willingness remained relatively strong. However, given the overall weaker and volatile aluminum prices during the month, scrap suppliers generally preferred selling into strength and maintaining fast turnover, resulting in limited overall market circulation. A pricing game emerged between supplier selling rhythms and downstream restocking demand. Aluminum scrap prices remained range-bound between policy-driven cost support and the downward pressure from weaker aluminum prices, with limited short-term elasticity.
Downstream demand shows divergence
Domestic primary aluminum product processing overall extended its steady growth trend in May. Despite fluctuating and softer aluminum prices, production enthusiasm among processors remained relatively stable.
According to Mysteel's statistics, the weekly average output of aluminum billets in May increased by 1.1% month-on-month. Regarding inventories, plant inventories continued to draw down; as of the end of May, finished product inventories of aluminum billets fell 15.2% month-on-month.
Downstream, performance varied across segments. For aluminum bar, output dipped slightly due to insufficient molten aluminum supply in some regions, while fluctuating futures prices kept downstream enterprises cautious, leading to sluggish spot transactions.
For aluminum rod, export demand for wire rods was robust, common rod supply turned tight, and many producers restricted order acceptance or halted new orders entirely, driving a month-on-month output increase.
Aluminum plate and strip capacity utilization rates remained high, with ample orders for can lids, power battery casing plates, and new energy vehicle body panels.
In the aluminum foil sector, energy storage and power battery demand provided sustained support; leading enterprises' order books are scheduled through August–September, resulting in a slight output increase.
From the perspective of end-use demand structure, divergence across segments persisted. In construction, new real estate starts remained depressed, traditional peak-season demand lacked elasticity, and operating rates stayed low year-on-year.
The automotive and lightweighting sectors maintained steady growth, with the rising penetration rate of new energy vehicles driving a steady increase in aluminum usage per vehicle.
Energy storage and power grid sectors continued to lead demand growth, with strong consumption of battery foil and aluminum rod.
Export-wise, demand for aluminum materials and products surged, and the return of overseas orders effectively boosted the processing sector, marking the most prominent demand highlight in May.
Overall, weaker aluminum prices partially alleviated procurement cost pressures for end-users, providing marginal support for demand release.
Market enters destocking cycle
May marked a key turning point for China's domestic aluminum market fundamentals, as the accumulation cycle ended completely and inventories officially entered a trending destocking channel.
As of May 29, according to Mysteel's statistics, total traders' inventories of aluminum in China stood at 1.401 million tonnes, down 48,000 tonnes month-on-month, with the drawdown rate slightly faster than in April. In terms of supply structure, the proportion of directly supplied molten aluminum continued to rise, reaching 74.18% in May (up 0.39 percentage points month-on-month), effectively diverting the availability of physical aluminum ingots and marginally easing casting pressure. The smelters' in-plant inventories decreased by 9,000 tonnes to 59,000 tonnes, alleviating inventory pressure.
On the demand side, both domestic and external demand jointly accelerated inventory drawdowns. Domestic demand saw the continuation of downstream processing and end-user recovery, with sustained release of rigid procurement needs; external demand benefited from strong exports of aluminum semis and finished products, with returning overseas orders lifting processor operating rates and further driving raw material consumption. Traders' inventories of aluminum bar fell by 68,000 tonnes to 190,000 tonnes, a significant decline that directly reflected substantial warming in downstream processing demand. The drawdown of inventory signaled improving supply-demand dynamics, and the logic supporting the aluminum price floor via fundamentals continued to strengthen.
By the end of May 2026, SHFE aluminum ingot warehouse receipts had accumulated to 485,500 tonnes, up 36,000 tonnes from the end of April. This modest build was primarily driven by inflows related to arbitrage and delivery activities; the receipts were concentrated in delivery warehouses and did not enter the spot market, thus exerting limited disruption on the spot destocking pace.
Based on Mysteel's analysis of May primary aluminum supply, demand, and changes in traders' and smelters' in-plant inventories of aluminum ingots and bars, the theoretical supply gap for the month is estimated at approximately 156,000 tons.
Prices to remain range-bound in June
Entering June, the dynamic of strengthening fundamental support offset by persistent macro pressures will keep aluminum prices oscillating overall. However, the continuous improvement in fundamentals provides notable support for the price floor, limiting downside room.
On the macro front, rate hike expectations remain the dominant constraint. Persistently strong U.S. inflation data continues to push back the timing of the Federal Reserve's policy pivot, and elevated Treasury yields continue to suppress non-ferrous metal valuations.
On the supply side, the pace of new domestic capacity additions remains manageable, with stable increments from southwestern China. Overseas, uncertainty surrounds the recovery of smelting capacity in the Middle East, compounded by disruptions related to navigation through the Strait of Hormuz; the global aluminum supply tightness is unlikely to change fundamentally in the near term, providing ongoing price support.
On the demand side, resilience in new energy-related demand remains intact, supported by accelerating grid investment, continued expansion of energy storage installations, and sustained export chain prosperity, ensuring solid structural demand support.
Regarding inventories, the destocking trend is expected to strengthen further in June, making the logic of inventory-driven price floor support increasingly clear; even if macro pressures intensify periodically, a sharp price collapse remains unlikely.
Overall, aluminum prices in June will reflect a two-way game between macro headwinds and fundamental tailwinds, resulting in an overall oscillating trajectory.
Written by Regina WANG
wangjiaqie@mysteel.com
