Accelerating Aluminum Supply: Indonesia Bottlenecks Lifted, China Output Hits Peak
AI summary card
Accelerating Aluminum Supply: Indonesia Bottlenecks Lifted, China Output Hits Peak
Expert interviews indicate that strong profits are driving accelerated overseas aluminum capacity expansion. With power constraints in Indonesia easing, expectations for new capacity in 2026-27 have been significantly raised; Chinese aluminum production is expected to surpass the 45 million tonne limit, increasing global supply pressure.
- Resolution of power bottlenecks in Indonesia leads to a 1.6 million tonne upward revision in expected new aluminum capacity for 2026-27 compared to March forecasts
- Combined new capacity in Indonesia and Central Asia for 2026-28 will reach nearly 6 million tonnes, exceeding previous market estimates
- Chinese primary aluminum production expected to reach 45.5 million tonnes in 2026, with approximately 1-1.2 million tonnes of non-compliant overproduction
- Strong export orders in April-May expected to drive double-digit growth in Chinese aluminum exports and domestic destocking starting June
- Baiyin Industrial Park electricity price approx. 0.46 CNY/kWh, making primary aluminum production costs comparable to those in China
Report interpretation
Overview
Based on meeting minutes from an aluminum smelting capacity expert conference call hosted by Goldman Sachs, the core conclusion is that the global aluminum supply side is accelerating expansion driven by strong industry profits. Following recent site visits to Indonesia, experts noted a significant relief in local power supply constraints, spurring faster capacity construction by Chinese companies overseas; simultaneously, domestic aluminum production in China continues to break through the 45 million tonne policy ceiling. This implies that the global aluminum market will face larger supply increments than previously anticipated over the next two years.
Core views
Relief of Supply Bottlenecks and Capacity Revisions in Indonesia: Experts stated that power constraints on aluminum smelting in Indonesia have eased significantly, mainly due to Tsingshan Industrial Park reallocating power previously reserved for suspended nickel smelting to aluminum plants, and smooth progress in local power plant construction (including 710MW supercritical units). Based on this, experts raised their expectations for new aluminum capacity in Indonesia for 2026 and 2027 to 2.15 million tonnes and 1.975 million tonnes respectively, an increase of 1.6 million tonnes over forecasts made in March 2026. Seventy percent of this increment comes from power reallocation after nickel smelting shutdowns. The schedule for new capacity rollout will accelerate starting from Q4 2026. Expansion Plans for China and Central Asian Capacities: Apart from Indonesia, Chinese producers are also accelerating layouts in Kazakhstan with a planned total capacity of 5.4 million tonnes, 1.8 million tonnes of which is expected to come online in 2028. Domestically in China, despite environmental inspections, experts believe these are routine arrangements rather than production cuts targeting the aluminum sector. Driven by non-compliant capacity, capacity replacements that should have been stopped but haven't, and short-term current intensification factors, China's primary aluminum production in 2026 is expected to reach 45.5 million tonnes, a year-on-year increase of 1 million tonnes, substantively breaking the industry red line of 45 million tonnes. Robust Exports and Inventory Destocking: On the demand side, since April-May 2026, export orders for unwrought aluminum, aluminum alloys, aluminum plates/sheets/coils, and profiles have shown strong momentum. Experts expect this to drive double-digit growth in Chinese aluminum exports and trigger a period of domestic social inventory destocking starting in June. Although supply-side increments are huge, short-term export resilience provides a buffer for the domestic market.
Analysis framework
The institution adopted an analysis methodology combining 'on-site research verification' and 'bottom-up project tracking'. Unlike traditional paths relying solely on macro data or official announcements, the core basis for this analysis was experts' on-site inspections of Indonesian industrial parks. By confirming micro-level operational details such as power plant construction progress and nickel-aluminum power allocation, the prior capacity forecast model was adjusted. Simultaneously, by reviewing the commissioning schedules and power support conditions for specific projects (e.g., Projects A-F), regional supply increments were aggregated bottom-up to capture supply-side expectation gaps more accurately.
Methodology notes
Identification and Revision of Supply-Side Bottlenecks
In capital-intensive industries, capacity release is often constrained by specific bottlenecks (such as power in this case). When bottleneck factors (such as power freed up by nickel smelting shutdowns) undergo structural changes, supply curve forecasts must be revised timely rather than linearly extrapolating historical data.
Cross-Variety Resource Reallocation Effects
Within comprehensive industrial parks, different metal varieties (such as nickel and aluminum) share infrastructure. A downturn in one variety's performance (suspension of nickel smelting) can translate into cost advantages or capacity release drivers for another variety (aluminum). Analysis needs to focus on such resource linkages within the industry chain.
Key data
- Indonesia 2026E New Aluminum Capacity2.15 million tonnesSignificantly raised compared to March 2026 forecast, accounting for approximately 5.5% of the global market
- Indonesia 2027E New Aluminum Capacity1.975 million tonnesCapacity rollout accelerates, corresponding to a production increase of 1.825 million tonnes
- China 2026E Primary Aluminum Production45.5 million tonnesYear-on-year increase of 1 million tonnes, breaching the 45 million tonne policy ceiling
- China Non-compliant/Over-production Scale1-1.2 million tonnesIncludes illegal capacity, non-compliant retired-old capacity not shut down in time, and short-term current intensification
- Indonesia Tsingshan Park Electricity PriceApproximately 0.46 CNY/kWhHigher than the Chinese average (0.41 CNY/kWh), but comprehensive costs are comparable
Impact & implications
The research report suggests that the global aluminum supply landscape is experiencing unexpectedly loose conditions. The resolution of Indonesia's power bottlenecks and the advancement of Central Asian projects mean that nearly 6 million tonnes of new overseas capacity will come online between 2026-2028, putting downward pressure on long-term aluminum prices. However, strong Chinese export performance and domestic inventory destocking in the short term indicate continued support from the demand side. The market may exhibit a divergent characteristic of 'long-term supply surplus but short-term marginal improvement'. For the industry, Chinese enterprises going global to build factories has become a key strategy to hedge against domestic capacity ceilings.
Risks
- Indonesian government approvals or power infrastructure facility construction progress falling short of expectations
- Escalation of Chinese environmental inspection intensity leading to forced shutdowns of non-compliant capacity
- Intensifying global trade friction affecting the sustainability of Chinese aluminum export orders
What to watch
- Actual commissioning and ramp-up progress of key projects in Indonesia (A-F) in Q4 2026
- Actual fulfillment of Chinese aluminum export orders after June and changes in social inventory levels
- Power approval and construction launch milestones for Kazakhstan projects (G, H)