By Ulf Bergman
According to data released by the Chinese National Bureau of Statistics (NBS) a few days ago, aluminium output reached a new monthly record in August. The Chinese smelters hiked production by 4.7 per cent compared with the same month last year, producing 3.98 million tonnes. Last month’s reading was marginally higher than the previous monthly high, set in June this year, highlighting that the current run of high profit margins is driving producers to maximise output.
During the first eight months of the year, Chinese aluminium production rose to 31.1 million tonnes, up 3.9 per cent from the same period a year ago. In 2025, China’s smelters delivered just over 45 million tonnes, up 2.4 per cent from 2024. Last year’s output also matched an existing production cap, suggesting that production either has to ease during the remainder of the year or that the output ceiling has to be revised quickly.
An Eventful Year for Aluminium Prices
The aluminium futures listed on the London Metal Exchange are currently trading around eleven per cent higher than at the end of last year. Still, the past eight months have been anything but plain sailing.
Disruptions to the global flow of aluminium in the wake of the war between the US and Iran pushed prices higher in the first half of the year. Short-dated LME aluminium contracts reached a year high in early June, following gains of more than twenty per cent since the end of February. However, prices dropped sharply through the rest of June and gave up all the gains from the preceding three months, with a tentative peace deal between the US and Iran acting as a trigger.
Over the past two months, aluminium prices have recovered somewhat. A modest upward trend since the beginning of July, supported by low inventory levels, has translated into gains of nearly eight per cent. However, an increasingly hawkish Federal Reserve and a stronger US dollar may spell the end of the recent upward trend.
Robust Chinese Seaborne Trade in Bauxite
Like Chinese aluminium output, bauxite exports bound for China have enjoyed a strong year. With only May bucking the trend, monthly shipments have been higher than during the same period last year. Still, the steady increase in bauxite exports to China has been developing over several years. Over the year’s first eight months, volumes rose by 12.6 per cent.
Seaborne bauxite exports bound for China in August may suggest that the country’s aluminium production cap may be revised or, at least, not strictly enforced. According to data from Signal Ocean, exports of the feedstock for aluminium production heading for China rose sharply last month. Some 22.3 million tonnes of bauxite were loaded onto vessels globally, with China as a destination, during the past month. The reading represented year-on-year growth of 42.6 per cent and was 27.1 per cent higher than in July.
The substantial increase in volumes during August brought the seasonal decline to an early conclusion. In recent years, August has been at the tail end of soft export volumes, before a recovery during the year's final four months. While absolute volumes have been declining since April, last month’s turnaround brought them to the second-highest level of the year.
Last month’s sizeable growth in export volumes resulted from more bauxite being shipped from Guinea, China’s primary provider, by quite a margin. Signal’s data indicate that nearly 80 per cent more bauxite was exported from West Africa to China than a year ago. In contrast, shipments from Australia, the distant second, fell 4.3 per cent year-on-year, resulting in a healthy tonne-mile demand injection into the trade, benefiting the capesizes.
Outlook for the Chinese Bauxite and Aluminium Trade
The solid cargo volumes for bauxite heading for China during the past month could suggest that the country’s aluminium production will remain high in the coming months. However, enforcement of the production cap would see a pullback in Chinese aluminium production during the remainder of the year. Strict adherence to the annual production limit of 45 million tonnes would see monthly output retreating by around half a million tonnes from August’s volumes during the year’s final four months. A development along these lines could see aluminium prices moving higher again, as global supplies would come under additional pressure.
While a Chinese restriction on aluminium output in the coming months may complicate matters across the global markets, adding to the disruption to supplies arising from the continued volatile situation in and around the Strait of Hormuz, the effects on shipping demand may be limited. Given the time frames involved in bauxite shipping, seaborne exports over the coming months are more likely to be for production in 2027 and, as such, not yet affected by future production limits. Hence, there is little to suggest that the normal seasonal recovery during the third and fourth quarters will be under threat. As Chinese smelters remain reliant on supplies from Guinea, a continued seasonal recovery in demand will add a healthy amount of tonne-mile demand to the capesize segment.
Data source: Ocean Analytics