According to calculations by the Mysteel Aluminum Research Team, the weighted average full production cost for China's aluminum sector stood at Yuan 15,760/tonne in July 2026, up Yuan 66/tonne month-on-month. The Mysteel spot aluminum ingot average price for the same period was Yuan 23,099/tonne, resulting in a theoretical industry profit of Yuan 7,339/tonne, down Yuan 738/tonne MoM. Overall, falling aluminum prices coupled with a slight rise in costs led to a contraction in industry profit margins.
Power costs edge lower
In July 2026, the weighted average electricity cost for China's aluminum industry was approximately Yuan 0.386/kWh, down Yuan 0.02/kWh MoM. The breakdown shows a slight increase in self-generated power costs, offset by a notable decline in grid-purchased power costs.
Domestic thermal coal prices in July dropped first and followed by a rebound, before moving rangebound. Early in the month, prices fell under pressure from high hydropower output during the rainy season, elevated port inventories, and import competition, coupled with soft thermal power demand. Mid-month, prices stabilized and strengthened as widespread high temperatures boosted thermal coal consumption and brought down the inventories, further supported by tightening supply in major producing regions. However, inventories remaining high and long-term contract supply mechanisms capped significant upside. Late July saw narrow-range fluctuations.
Due to contract cycles and rising fuel costs, the weighted average cost for self-generated power rose slightly by Yuan 0.002/kWh to Yuan 0.359/kWh. Conversely, with Southwest China entering the rainy season, increased hydropower output drove grid power costs down by Yuan 0.007/kWh to Yuan 0.422/kWh. The decline in grid power costs outweighed the rise in self-generation costs, resulting in a net decrease in overall electricity expenses.
Looking ahead to August, thermal coal prices are expected to show a pattern of strong start and softening finish, oscillating at high levels as peak-season realities clash with expectations for the upcoming off-season. Early August is expected to see sustained high temperatures underpinning elevated power consumption, with thermal power plant daily consumption remaining robust and continuously driving firm contractual procurement. Concurrently, stringent safety oversight in major producing regions, coupled with intermittent rainfall disrupting production and outbound logistics, will maintain firm support for coal supply. This dynamic leaves prices biased to the upside, with downside risks limited.
Mid-to-late August will likely witness a moderation in demand as the peak-season effect fades and end-market daily consumption shows signs of easing. This, combined with persistent pressure from high inventory levels, is expected to soften the demand for commercial coal, exposing prices to some correction pressure. However, rigid supply-side constraints will cap the downside, making sharp price declines unlikely.
Regarding grid power, prices are anticipated to retain modest downside potential as the Southwest remains in its rainy season, sustaining high hydropower output. Overall, the composite electricity cost for the aluminum industry is projected to extend its marginal decline into August, albeit at a slower pace than in July.
Alumina prices in narrow consolidation
Domestic alumina spot prices fluctuated within a narrow range in July, with the monthly weighted average price rising Yuan 23/tonne or 0.84%MoM to Yuan 2,762/tonne. Mid-to-early July saw alumina futures retreat, prompting some traders to soften their offers and driving spot transaction prices lower. Concurrently, the release of new and restarted capacity in southern China boosted inter-regional flows northward. This, in turn, encouraged greater selling activity from arbitrageurs, leading to the gradual digestion of low-priced warehouse receipts. Furthermore, after factoring in freight costs and regional monthly averages, the economic advantage of shipping southern material north became increasingly evident, leaving regional supply-demand dynamics in a phase of constant adjustment.
Entering late July, cross-regional supply flows rose markedly, intensifying selling pressure and pushing spot prices further down. As newly commissioned and restarted capacity in the south stabilized, regional availability improved, leading to mounting inventory pressure at some refineries. Persistent bearish sentiment among traders continued to fuel a willingness to sell at discounts to the market. By month-end, no signs of concentrated production cuts or maintenance had emerged in either northern or southern regions. With the weak fundamentals landscape showing little sign of improvement, the spot price trend remained biased to the downside.
On the supply side, the steady ramp-up of new capacity has significantly increased available market supply, deepening the pessimism among sellers. The earlier sustained decline in futures had already dragged spot transaction prices lower. Recently, an overseas refinery unexpectedly curtailed output due to natural gas supply issues, sparking an immediate sharp rally in futures. Should the disruption prove prolonged, concerns are mounting that overseas alumina prices will surge, widening the arbitrage window. This could open China's export channel and alleviate the domestic oversupply glut, a situation we will continue to monitor closely.
However, the futures rebound is unlikely to lift domestic spot prices in the short term. Instead, it risks exacerbating selling difficulties for sellers, while buyers' bargaining power remains weak. August alumina prices are expected to remain stable with a bearish bias, trading within a range of Yuan 2,550-2,700/tonne.
Pre-baked anodes post slight gains, then retreat
Cost support re-emerged during the settlement cycle, presenting an upward catalyst for pre-baked anode prices in July. According to Mysteel, a major Shandong-based aluminum smelter raised its July 2026 pre-baked anode procurement benchmark by Yuan 30/tonne MoM. The execution prices are set at Yuan 5,683/tonne (cash) and Yuan 5,707/tonne (acceptance).
Following a brief downward correction, the anode market regained footing. While the rebound was modest, the price trajectory aligned closely with rising costs for upstream raw materials, specifically petroleum coke and coal tar pitch. This cost inflation flowed through to the finished product, causing the industry's overall cost to edge higher. Nevertheless, margins remained comfortably above the breakeven line, with marginal fluctuations staying contained.
In July, most anode producers maintained stable production and sales schedules. With capacity restarts offsetting curtailments, the industry operating rates held steady, ensuring ample supply. Downstream, the release of new aluminum capacity has largely concluded, with output running at stable levels, thereby providing firm and consistent demand support. Overall, the fundamentals backdrop for pre-baked anodes remained sound.
However, influenced by falling raw material prices during the latest settlement cycle, the anode market has resumed its downward trajectory. Mysteel data shows the same major Shandong smelter lowered its August 2026 procurement benchmark by Yuan 53/tonne MoM to Yuan 5,630/tonne (cash) and Yuan 5,645/tonne (acceptance).
After the brief upturn, the market has pulled back once more. Crucially, the moderate pace of this decline has fostered a sense of cautious optimism. The correction is expected to ease cost pressures on producers marginally. Looking ahead, market participants will need to closely monitor raw material price trends and their subsequent impact on producer profitability.
Marginal adjustments in cost structure
July data indicates the cost share of alumina increased to 34%, while power costs held steady at 33%, and pre-baked anode costs remained stable at 18%.
The cost gap between grid power and self-generated power narrowed due to falling grid prices, reducing cost disparities among producers. With alumina prices stable, the industry's cost curve remained relatively flat, with limited differentiation. Full production costs currently ranged between Yuan 14,000-19,000/tonne, a spread of Yuan 4,127/tonne. Approximately 69.9% of capacity fell within the Yuan 15,000-18,000/tonne bracket, indicating a concentrated cost structure. Regionally, Xinjiang retained the lowest production costs owing to its coal advantage, cementing its position as the most profitable region.
Sustained high profitability as the norm
Despite a 9.14% MoM decline in profits to Yuan 7,339/tonne, profitability remained at historically high levels. The entire industry has been profitable on both a cash-cost and full-cost basis, demonstrating strong earnings resilience. With alumina supply ample and price upside limited, energy cost differentials have re-emerged as a key competitive factor. The sector is likely to maintain its low-cost, high-profit trajectory, with the earnings center expected to remain robust.
Looking ahead for August, thermal coal prices are expected to hold firm, keeping self-generated power costs elevated, while grid power costs may dip further. Alumina prices face continued downward pressure amid rising supply.
Mysteel projects the industry's weighted average full cost will fall by approximately Yuan 78/tonne MoM in August. However, actual cost movements will vary based on individual plants' procurement timing, inventory structures, and the digestion pace of existing raw material stocks.
Written by Regina WANG
wangjiaqie@mysteel.com
