The core pricing logic of the domestic aluminum market has undergone a fundamental shift. By 2026, China's total aluminum production capacity has reached the policy-controlled ceiling. With industry-wide operating rates already elevated and room for further capacity expansion effectively exhausted, the sector has formally exited the era of volume-driven growth. As industrial policies continue to guide the coordinated clustering of aluminum smelting and downstream processing, the traditional analytical framework centered on nationwide aggregate supply-demand dynamics has gradually lost its relevance. The market's core focus has shifted to three key dimensions, that is, the regional supply-demand rebalancing, the reallocation of cross-regional circulating resources, and the substitution of cast ingots by local deep-processing of molten aluminum.
Currently, major production hubs in Southwest and Northwest China are accelerating the integration of the aluminum industry chains. The proportion of direct molten aluminum supply to deep-processing facilities continues to rise across regions, while the scale of domestically tradable commodity aluminum ingots has entered a trend of structural contraction. This reshaping of the supply-demand landscape has directly given rise to the atypical regional price spread structure observed during the 2026 off-season.
Historically, following seasonal patterns, downstream operating rates typically decline during the traditional consumption off-season, leading to synchronized weakening in aluminum prices across all regions, continuous convergence of inter-regional spreads, and price movements entirely dictated by the strength of end-user demand.
However, in 2026, the domestic aluminum market exhibited distinctly differentiated structural performance during the off-season, with the trends in the three core consumption markets, East China, South China, and Central China, significantly diverging, completely overturning the traditional demand-driven logic of price spreads.
According to Mysteel's daily monitoring, the June-July off-season featured a clear structural pattern characterized by persistent premiums in South China, benchmark-range fluctuations in East China, and deep discounts in Central China.
A vertical comparison with the same period in 2024-2025 reveals that during previous off-seasons, the price spread of South China aluminum relative to East China mostly narrowed to a premium of Yuan 50 /tonne, and frequently even inverted into discounts during periods of weak demand.
In contrast, the 2026 off-season saw a significant upward shift in South China's prices relative to East China, with the overall spread center rising by Yuan 60-100/tonne compared to the same period in previous years.
This systemic upward shift in regional price spread is not attributable to short-term capital flows, sentiment, or seasonal disturbances; rather, it stems from a medium-to-long-term industrial structural transformation driven by the sustained increase in the proportion of molten aluminum locally converted in five southwestern provinces, the trend-like sharp reduction in externally sold aluminum ingot volumes, and the ongoing contraction of the national total tradable aluminum ingot supply.
A further breakdown of the core reasons behind the supply disruption caused by reduced long-term contract volumes in the Southwest region can be categorized into three dimensions.
First, several core aluminum enterprises in the Southwest region have proactively adjusted their production and sales structures for the second half of 2026, further tilting toward direct molten aluminum supply and compressing cast ingot output. Some companies have directly reduced or even suspended signing of aluminum ingot long-term contracts, further tightening the supply of tradable ingots in the market.
Second, leading aluminum groups have implemented strict internal supply guarantee mechanisms. Under the premise of continuously rising molten aluminum local conversion rates and significantly shrinking proprietary cast ingot volumes, they prioritize securing raw material supply for their in-house deep-processing capacities. The long-term contracts with traders and end-market users have been comprehensively scaled back, existing long-term contracts cannot be renewed, and virtually no quotas are available for new long-term contracts.
Third, leveraging local economic and industrial support policies, the aluminum processing industry cluster in the Sichuan-Chongqing area has expanded rapidly. It not only fully consumes local molten aluminum and ingot resources but also continuously intercepts cross-regional supplies from Xinjiang originally destined for South China, Central China, and returning to the Northwest, further exacerbating the structural mismatch of aluminum ingot circulation resources nationwide.
According to Mysteel's research data as of June 2026, Chongqing's aluminum capacity has achieved 100% local digestion of molten aluminum, with zero external sales of aluminum ingots. All molten aluminum is directly supplied to the local deep-processing industry cluster, making it the first core production area in the Southwest to achieve "zero cast ingot external supply."
Guangxi's local molten aluminum conversion rate has reached 88%, with the vast majority of aluminum capacity earmarked for supporting local downstream lines such as profiles, plates/strips, and high-end aluminum alloys, leaving only a small surplus producing ingots that flow into the national market.
The molten aluminum conversion rates in Sichuan and Guizhou are at medium-to-high levels, with continued commissioning of local deep-processing projects steadily consuming regional primary aluminum resources and significantly squeezing the volume of externally sold cast ingots.
Even in Yunnan, which previously had a relatively lower conversion level in the Southwest, the scale of externally sold molten aluminum cast ingots has shown continuous compression amid the concentrated recent commissioning of numerous aluminum deep-processing projects.
Overall, the Southwest production region has comprehensively formed a new industrial landscape characterized by high local conversion rates of molten aluminum, continuous contraction of commercial ingot sales, and prioritized internal retention of regional resources. This has completely altered its historical market positioning as a core source of nationally circulating aluminum ingots.
Synchronized with the evolution of the Southwest is the Northwest region, where mainstream aluminum enterprises continue to increase investments in processing facilities, constantly raising the proportion of direct molten aluminum supply and proactively compressing cast ingot output. The region's externally saleable ingot production continues to decline, and locally available aluminum ingots can no longer meet the region's processing production.
To bridge this raw material supply gap, Northwest smelters have established a normalized and large-scale operational model of procuring aluminum ingots from Xinjiang for replenishment. Relying on the region's well-developed rail and road logistics networks, Northwest purchases of aluminum ingots from Xinjiang enjoy significant freight cost advantages.
Given Xinjiang's concentrated production capacity, stable supply, high product standardization, and explicit local policy support for cross-regional coordination, sourcing aluminum ingots from Xinjiang in the Northwest has shifted from a seasonal off-season adjustment to a long-term, normalized business strategy. This strategy accommodates regional supply-demand structures while balancing local industrial output and supply chain stability.
Looking ahead, the Northwest will form a new circulation pattern of prioritizing local deep processing with molten aluminum, supplementing local shortfalls with Xinjiang's supplies, and internally closing the loop on regional resource digestion, becoming a typical example of an intra-regional circular economy for aluminum resources in China.
In summary, the market logic of China's domestic aluminum industry underwent a profound shift in 2026. The era of relying solely on aggregate supply-demand assessments to determine market trends has ended, officially ushering in a new stage where regional structures dictate market strength, molten aluminum conversion governs spots circulation, and resource interception dominates regional price differentials. The differentiated levels of molten aluminum local conversion across the five southwestern provinces constitute the most fundamental underlying logic behind the current reshaping of the aluminum ingot circulation landscape.
Looking forward, as deep-processing capacities nationwide continue to come online and the proportion of direct molten aluminum supply steadily rises, the total volume of commodity aluminum ingots will steadily contract in the long term. Normalized fluctuations in regional price spreads, normalized cross-regional cargo allocation, and the stabilization of the Northwest's ingot procurement from Xinjiang will become enduring features of the industry. The challenges faced by downstream enterprises in South China and Central China in securing stable raw material supplies will be difficult to resolve in the short term, and structural resource shortages will persistently dominate the divergent trends across different regions.
Written by Regina WANG
wangjiaqie@mysteel.com
