China, the world's largest producer of aluminium, is set to face significant changes in its aluminium production capacity. After the government imposed a cap on aluminium production in 2017 to combat overcapacity and reduce emissions, the country's aluminium sector is now approaching a key turning point. This year, China’s aluminium output is expected to reach a record high of over 43 million tons, nearing the 45-million-ton cap, a ceiling that has already been hit in annual capacity.

This restriction on production growth is expected to have major implications not only for domestic suppliers but for global aluminium markets. With less aluminium available for export, prices could rise in international markets, particularly as sanctions on Russian aluminium, a major supplier, could tighten further soon. As China’s production grows only marginally in 2025—by an estimated 2%—and slows even further in 2026, the global supply of aluminium will likely tighten, placing upward pressure on prices.

For the aluminium market, this shift in China’s output has broad-reaching consequences. Over the past few years, China’s aluminium exports surged, in part due to its competitive price advantage. In 2024, exports hit a record 6.7 million tons, driven by a tax rebate system that incentivized foreign sales. However, with the removal of these tax rebates in December, combined with the production growth slowdown, China’s aluminium exports are expected to drop by as much as 9% in 2025. This decline in overseas sales is poised to raise aluminium prices globally, benefiting producers in other regions.

China’s aluminium industry is also increasingly looking overseas for opportunities. Chinese smelters, facing limitations at home, have expanded their operations into regions like Indonesia, where they are tapping into abundant bauxite resources. Despite the potential for growth, these overseas projects raise concerns about carbon-heavy coal power usage and slow infrastructure development, which could impact their long-term viability and environmental sustainability.

Further, some smaller smelting companies are eyeing expansion into South America and Africa, but these efforts are still in their infancy. While such diversification could mitigate some of the pressure on China’s aluminium supply, it is uncertain whether these overseas expansions will offset the domestic production constraints in the short term.

From a chemical industry perspective, the slowdown in Chinese aluminium production could have significant ramifications. Aluminium is a critical material in various industries, including automotive, aerospace, and electronics, where demand for lightweight metals continues to grow. The rise in global prices could prompt increased competition for aluminium, driving up costs for these industries. Additionally, the shift toward overseas production and the focus on bauxite-rich countries could affect supply chains, particularly in regions heavily reliant on Chinese imports.

As China faces the challenge of balancing its domestic aluminium demand with global market trends, the limitations on its production capacity will continue to shape the future of the aluminium market, with widespread implications for pricing, supply, and industry dynamics.