Our proprietary global supply-demand forecasting model indicates that the structural deficit in primary aluminum will continue to widen materially. We project a global deficit of 930,000 tonnes in 2026, expanding to 1.49 million tonnes in 2027 (Chart 1). Primary aluminum inventories and warehouse receipts across all major exchanges will exhibit a sustained downward trajectory throughout 2026 (Charts 2, 3, and 4). This fundamental inflection point has not yet been fully discounted by financial markets.

The core logic underpinning our bullish strategy is as follows:

1. China's electrolytic aluminum capacity has reached peak utilization: Total operational capacity stands at approximately 45.1 Mtpa, with industry utilization rates exceeding 98%. The National Development and Reform Commission's (NDRC) dual energy control policies render any net capacity additions functionally impossible over the next 18 months. We characterize this as the "zero supply elasticity era" for Chinese aluminum.

2. AI computing and aluminum smelting are in structural competition for electricity: Aluminum production consumes approximately 13,000 kWh of electricity per tonne.The International Energy Agency (IEA) estimates that total computing power consumption will top 1,000 TWh this year and reach 1,141 TWh by 2030 (Chart 5).Global electricity demand is forecast to grow 3.7% in 2026, compared to a 2.6% average annual growth rate between 2015–2023 and only 3.0% supply growth, exacerbating the global power deficit. Overseas long-term green power purchase agreements (PPAs) are increasingly prioritizing data centers, raising aluminum producers' power costs—a development that remains incompletely priced into current futures curves.

3. Aluminum-for-copper substitution is accelerating: When the copper-aluminum price ratio exceeds 3.5, high-conductivity aluminum alloys reduce raw material costs by approximately 50%. Energy storage alone will generate 1.45 million tonnes of incremental primary aluminum demand in 2026. Global automotive aluminum demand is projected to reach 6.3–7.8 million tonnes in 2026, with new energy vehicles now incorporating over 210 kg of aluminum per unit. This robust green demand has more than offset weaker consumption from the construction sector.

4. The alumina market is at a cyclical bottom: All-in production costs for alumina currently stand at RMB 2,700–2,800 per tonne, with most third-party processors operating at or below   breakeven. Guinea's June 2026 export controls, which cap annual bauxite exports at 150 million tonnes (an 18% reduction from 2025 levels), threaten China's bauxite supply:Guinea supplied ≈72% of China's bauxite imports (per China Customs / SMM data, 2025–early 2026), with imported ore meeting ≈70% of China's total bauxite consumption. This leaves China's refining complex structurally exposed to any curtailment in Guinean export flows.An alumina price rebound would lift the aluminum cost curve, exerting upward pressure on SHFE aluminum prices.

5. Middle East supply chains represent the most explosive macro catalyst: The Middle East hosts around 6.3 Mtpa of commercial primary aluminum capacity, representing roughly 8.0% of the global total and 18.5% of capacity outside China. All smelters in the region rely entirely on gas-fired power generation. Heightened U.S.-Iran geopolitical frictions have triggered disruptions to energy supply and regional trade, leading to a total of 2.1 Mtpa of idled capacity across the Middle East — encompassing Iran’s full domestic output and substantial production cuts at adjacent Gulf Cooperation Council (GCC) smelters. Higher shipping and energy expenses are passed through to China via import routes, putting firm support under domestic aluminum prices.

6. The global macroeconomic order is pivoting from efficiency to security: Resource nationalism is transforming critical minerals into strategic assets, driving systemic and irreversible cost inflation in extraction, logistics, and compliance. Aluminum, as a foundational material for the energy transition, is uniquely positioned to benefit from a secular uptrend in both nominal prices and scarcity premia.

   
   

Heading Capital International vs. Market Consensus: Rebuttal

The market maintains a cautious outlook on aluminum prices based on two primary concerns: (1) near-term geopolitical de-escalation will erode risk premiums, and (2) persistent global inflation and prolonged high interest rates will weigh on manufacturing demand worldwide.

We offer the following counterarguments:

•  Geopolitics: The U.S.-Iran conflict represents chronic systemic friction, not an acute transitory event. Its impact on Middle Eastern and European gas-to-power costs is structural and irreversible. De-escalation narratives obscure this fundamental reality.

• Demand: Conventional macroeconomic models overemphasize interest rate-sensitive real estate demand while overlooking the rigid green demand from AI data centers and grid infrastructure. Aluminum-for-copper substitution alone will more than offset the construction sector downturn.

• Supply: China's 45 Mtpa capacity ceiling has been substantively breached from above. Combined with AI-driven electricity competition, irreversible supply rigidity is evidenced by declining LME inventories and warehouse warrants.