China Aluminum Output Caps Propel LME Prices 2025

Introduction

Over the past week, a string of concrete developments in China has tightened aluminum availability and nudged benchmark LME aluminum prices higher. Policy measures, production limits and a sharp rise in recycled-aluminum costs are combining to reduce exportable volumes and tighten secondary supply. These moves translated into notable price action in both Shanghai spot markets and London Metal Exchange futures, creating opportunities and risks for producers, recyclers and end-users alike.

Key Drivers This Week

China production caps and policy shifts

China’s effective ceiling on primary aluminum output—around a 45 million tonne framework for the year—continues to constrain additional supply growth. Tightening enforcement and slower year‑on‑year expansion (growth trending near 2% for 2025) mean less incremental metal entering international channels. On top of output discipline, Beijing’s earlier removal of export tax rebates has materially reduced shipments abroad, with estimates pointing to an 8–11% drop in exports for the year. Together, these moves tighten the physical pipeline feeding external buyers.

Spot and scrap price acceleration in China

Domestic trading shows the supply squeeze in real time. Early-December Shanghai spot references rose sharply: SMM A00 spot climbed by roughly 280 yuan/mt to about 21,730 yuan/mt, while ADC12 alloy increased near 150 yuan/mt to about 21,500 yuan/mt. Recycled-aluminum grades have moved even more decisively — leading scrap categories such as baled UBC and mechanical casting scrap are roughly 200 yuan/mt higher month-on-month across major regions (Jiangxi, Hubei, Foshan, Anhui, Hunan). That jump in scrap reduces the arbitrage advantage for processors and raises costs across secondary producers.

Price Action and Market Implications

LME reaction and weekly momentum

On December 2, LME 3‑month aluminum traded near US$2,862 per tonne, dipping slightly day-to-day but still reflecting a broader weekly uptick; independent weekly tracking put aluminum gains at roughly 2.9% over the most recent seven‑day span. In short, headline volatility exists, but the trend over the week favored higher prices as China’s supply constraints became clearer.

Who is most affected?

Downstream fabricators and die‑casters face immediate margin pressure as ADC12 and recyclable feedstocks swell. Exporters outside China that had depended on arbitrage flows will see fewer cheap cargoes, increasing procurement competition. For physical traders and LME-backed inventories, tighter Chinese export volumes mean less buffer stock available internationally, raising the chance of episodic price spikes if demand re-accelerates.

Practical Takeaways for Investors and Industry

– Investors: Structural supply limitations and policy-driven export curbs support a bullish backdrop despite short-term churn. Monitor Chinese production reports and scrap flows closely for directional signals.
– Processors & recyclers: Expect input-cost pressure from rising scrap and alloy premiums. Hedging strategies or staggered buying may reduce squeeze during month‑end volatility.
– Traders: Look for narrowing arbitrage opportunities as Chinese exportable volumes decline; physical tightness can create sudden short-covering moves in futures.

Conclusion

Concrete policy actions and tighter secondary supplies in China have shifted aluminum’s immediate supply/demand balance. While LME prices showed modest day-to-day swings, the week’s developments — production caps, the removal of export rebates and rising scrap premiums — create a firmer price floor. Market participants should prepare for continued volatility but recognize the growing structural support beneath aluminum prices as year-end approaches.