Summary of Key Points
In recent years, the price of aluminum has doubled (from 12,000 yuan per ton in 2020 to 24,000-25,000 yuan per ton in 2026), primarily due to a severe imbalance between supply and demand. Domestic electrolytic aluminum production is capped at 45 million tons by policy, while the demand for aluminum in sectors such as new energy vehicles and photovoltaics has surged. Additionally, global supply disruptions (such as Guinea restricting bauxite exports and conflicts in the Middle East) have contributed to the soaring prices. This price increase has impacted the entire automotive industry chain: midstream aluminum processing companies are caught in a difficult position, with rising costs from upstream suppliers and pressure from downstream manufacturers to reduce prices. Downstream component suppliers are suffering heavy losses, while manufacturers continue to push down costs on their suppliers. The use of lightweight aluminum alloys in vehicles has become problematic; some automakers have switched back to steel, and although integrated casting technology has reduced manufacturing costs, it has led to significantly higher repair costs for both car owners and insurance companies. While recycled aluminum and financial hedging can provide some relief, the underlying issue of a long-term "low-price competition and uneven profit distribution" in the industry remains a serious concern.
I. Why is the Price of Aluminum Soaring? – A Double Blow from Imbalance in Supply and Demand and Global Disruptions
The main reason for the unstoppable rise in aluminum prices is the combination of a constrained supply and surging demand:
- Domestic Production Cap: In 2017, the government set a cap of 45 million tons for electrolytic aluminum production, which is now nearly reached (with 44.91 million tons in operation as of February 2026, at an utilization rate of 97%), leaving no room for expansion.
- Surging Demand: The amount of aluminum used per new energy vehicle has increased from 120-150 kg to over 200 kg (more than 300 kg in high-end models). With a new energy vehicle penetration rate exceeding 60% in 2026, this alone represents an additional demand of several million tons. Additionally, the demand for aluminum in photovoltaic applications (12,000 tons per GW) and energy storage has shifted the focus from construction to high-end manufacturing and new energy sectors.
- Global Supply Disruptions: Guinea, which accounts for 81% of China's bauxite imports, has reduced exports by 5 million tons this year. Conflicts in the Middle East have also caused production halts (e.g., 636,000 tons from a Qatari plant and 1.6 million tons from a Bahraini plant), resulting in a global supply shortfall of over 2 million tons.
These factors combined make it difficult for aluminum prices to fall, with industry experts predicting they will not return below 21,000 yuan per ton.
II. Who Is Being Hit the Hardest in the Industry Chain? – Midstream Processing Companies Are Most Vulnerable
The impact of rising aluminum prices varies across different segments of the chain:
- Upstream Aluminum Plants: These companies are benefiting from the price increase as their production capacity is limited, and the higher prices directly translate into increased profits.
- Midstream Aluminum Processing Companies: They face pressure on both sides. The pricing model involves a fixed aluminum ingot price plus processing fees, but they cannot pass on the price increases to customers immediately (with a three-month lag). By the time they can, downstream manufacturers may reduce prices or issue returns due to quality issues. For example, Guangdong Hongtu, a leading aluminum casting company, saw its revenue increase by 14% in 2025 but its profit decreased by 12%, while Wencan Co., Ltd. suffered a loss of 348 million yuan.
- Downstream Component Suppliers: They are struggling to stay in business, with manufacturers rarely accepting price adjustments and forcing them to supply at losses. Some suppliers even limit production (e.g., providing only 10,000 units instead of 30,000) under the pretext of insufficient capacity.
- Downstream Manufacturers: Despite higher costs, they continue to compete fiercely. The automotive industry's profit margin in January-May 2026 was only 3.4%, lower than the industrial average of 6.1%. Companies like NIO and Xiaomi have increased prices but still demand annual cost reductions of 10%-15% from their suppliers.
III. The Paradox of Lightweighting: Automakers Save Costs, but Car Owners and Insurance Companies Pay
New energy vehicles rely on lightweighting to improve range, with aluminum alloys being the preferred material. However, the rising prices and integrated casting technology have created complications:
- Some Automakers Switching Back to Steel: Lower-priced models are switching back to steel due to the high cost of aluminum, putting off their lightweighting goals.
- The Double-Edged Sword of Integrated Casting: While this technology reduces manufacturing costs, it significantly increases repair costs. For example, while a traditional car repair might cost 30,000 yuan, a vehicle with integrated casting parts could cost 110,000 yuan due to the need for complete replacements.
- Insurance Companies Suffering: Insurance premiums for new energy vehicles increased by 34.8% in 2025, but insurers incurred losses of 5.6 billion yuan, with over 143 vehicle models having compensation ratios exceeding 100%. Car owners are also bearing the brunt, with the savings on fuel costs being offset by higher insurance premiums. Policies requiring repairs rather than replacements highlight the severity of the issue.
IV. Is There a Way Out? – Recycled Aluminum and Hedging as Solutions, but Only Temporary
There are solutions, though they have limitations:
- Recycled Aluminum: Its production energy consumption is only 5% of that of electrolytic aluminum, and there are no capacity restrictions. Policies aim to increase recycled aluminum production to over 15 million tons by 2027, which could help alleviate supply pressures. However, the quality of recycled aluminum may not be suitable for high-end applications.
- Financial Hedging: Companies can lock in aluminum prices through futures markets to avoid price risks, but this requires professional expertise and capital, making it unaffordable for smaller suppliers. It can only mitigate short-term fluctuations, not long-term trends like a 100% increase in prices.
- The Fundamental Issue: The industry's problem lies in the competitive focus on low prices and product specifications, with manufacturers squeezing profits from suppliers. This leads to unsustainable situations where price increases can disrupt the entire supply chain. Experts suggest that the issue will only be resolved when manufacturers stop competing on price and focus on building brands and providing quality services, allowing suppliers to earn reasonable profits.
V. The Underlying Issues: Uneven Profit Distribution and the Limits of "Innovation-Driven Competition"
The rise in aluminum prices exposes long-standing issues in China's automotive industry chain:
- Profit Concentration: Manufacturers and core component companies take most of the profits, leaving smaller suppliers with minimal margins or losses.
- Endless Low-Price Competition: Manufacturers continuously pressure down on prices to gain market share, squeezing suppliers' profit margins. When raw material costs rise beyond what they can afford, suppliers may go out of business, threatening the stability of the entire supply chain.
If this cycle of no-profit situations and mutual burdening continues, the next affected component might not be integrated casting parts but China's very own domestic supply chain.
This analysis explains the complex situation surrounding the aluminum price increase in plain language, making it accessible to non-financial readers. The core issue is the imbalance between supply and demand, the cascading effects on the industry chain, and the need for a shift in the industry ecosystem to ensure fair profit distribution and sustainable development.