In recent weeks, the domestic spot aluminum ingot market has exhibited notable regional divergence. While basis levels in East China and the Central Plains have remained relatively stable, the South China market has seen its aluminum ingot basis strengthen independently to a year-to-date high. This phenomenon is not a short-term sentiment bubble, but rather driven by structural supply-demand contradictions unique to the region, backed by clear fundamentals support.
Rising molten aluminum conversion rates continue to climb. South China's aluminum ingot supply is highly dependent on deliveries from southwestern provinces including Yunnan, Guangxi, and Guizhou. In recent years, with the accelerated commissioning of aluminum processing projects in the southwest, the regional internal supply structure has been undergoing continuous changes.
According to incomplete Mysteel statistics, the combined annualized capacity of new local molten aluminum conversion projects in Yunnan and Guangxi is expected to reach no less than 760,000 tonnes in 2026. Among these, Yunnan's slab projects stand out most prominently, with an estimated 550,000 tonnes of annualized new capacity expected within the year, accounting for over 70% of the total incremental capacity.
Behind this shift is the strong pull from the new energy sector's demand for aluminum foil. Benefiting from the fat processing margins on battery foil and electronic foil, the slab market faces a significant supply gap, incentivizing local companies to actively expand slab capacity. As molten aluminum is diverted from ingot casting to direct supply to processors, the total volume of aluminum ingots available for shipment to South China warehouses is directly reduced. At the same time, the transfer of aluminum capacity from north to south has fallen short of expectations, further exacerbating regional supply contraction.
Tradable inventories drop to "scarce" levels, liquidity premium comes to the fore. The impact of supply contraction is directly reflected in the Foshan aluminum ingot traders' inventory structure. As of September 3, Mysteel data showed Foshan aluminum ingot traders' inventories at 144,000 tonnes. However, after stripping out approximately 37,000 tonnes of unclear ownership, the actual available inventory stood at only 107,000 tonnes. Within this 107,000 tonnes, exchange warehouse warrants have suffered severe surface steel-strap corrosion from prolonged storage, substantially impairing their tradability.
Meanwhile, most Russian aluminum cargoes have been locked into term contracts for direct delivery to end-users. Combined with transaction restrictions at certain local warehouses, the freely tradable inventory available for quick transactions among intermediaries is estimated at only about 50,000 tonnes. Against such a tight liquidity backdrop, buyers are forced to pay up to secure material for contract fulfillment, driving the South China A00 aluminum ingot basis steadily higher and widening the price spread against other regions.
In summary, the independent strengthening of the South China aluminum ingot basis is the combined result of rising molten aluminum conversion rates in the southwest, slower-than-expected north-to-south capacity transfer, and extremely low effective circulation within visible inventories. Therefore, the current elevated basis in South China represents the market's rational pricing of the region's specific supply-demand dynamics, grounded in fundamental realities, with both its independence and sustainability supported by clear logic.
Written by Regina WANG
wangjiaqie@mysteel.com
