China's Aluminum Exports Dampen Prices, Squeezing European Smelters as Gas Costs Rise

The Anomaly: Gas Up, Aluminum Flat

European natural gas prices have climbed back near the peaks seen during the March panic over the Iran-US conflict and the closure of the Strait of Hormuz. In normal times, that should have lifted aluminum prices sharply, given the metal's staggering electricity consumption in the smelting process. But the usual link has snapped. According to Robin J. Brooks, former chief economist of the Institute of International Finance and ex-chief FX strategist at Goldman Sachs, world aluminum prices have barely budged.

The culprit, Brooks argues, is a fresh wave of Chinese aluminum exports. He points to a replay of the pattern seen in 2022, when Russia's cut in pipeline gas sent European energy costs soaring. Back then, Beijing capitalized on high global prices by flooding the market. The move helped China capture market share and revenue, but it also prevented the price of aluminum from rising in line with producers' energy bills.

Now, even though the current gas shock is less severe than the 2022 crisis, the effect on European aluminum makers is worse. Chinese export data show a visible surge, and the resulting oversupply is completely neutralizing what would otherwise be strong upward pressure on metal prices. For European smelters, this means a double squeeze: skyrocketing operating costs and a stagnant sales price.

Why China's Export Strategy Is Undermining European Producers

A Repeat of 2022, But Far More Painful

The mechanics are almost identical to those of the 2022 energy crisis. Then, a gas-price explosion triggered by the loss of Russian pipeline volumes drove European power costs to record highs. China responded by ramping up aluminum shipments, keeping international prices from rising to levels that would have offset producers' own costs. The difference this time, Brooks notes, is that the underlying gas shock is milder, yet the price-suppressing effect of Chinese exports is even more pronounced. Even as European TTF gas prices have returned to near the March highs touched during the Strait of Hormuz panic, the aluminum price has remained anchored near its lower levels—creating an unprecedented divergence.

The Cost-Price Squeeze Hitting European Industry

Aluminum smelting is one of the most power-intensive industrial processes. When energy prices double, production costs jump almost proportionally. In a functioning market, those higher costs would pass through to metal prices. Instead, the influx of competitively priced Chinese aluminum is making it impossible for European producers to raise their selling prices. The result is a classic margin compression. Brooks describes it as a “catastrophic scenario” for the European aluminum sector: costs are climbing, but revenue is not, leaving plants at risk of closure or prolonged idle periods.

Beijing's Calculus and the West's Dilemma

From Beijing's perspective, the strategy makes clear industrial-policy sense. By keeping export volumes high when global demand is uncertain, Chinese producers maintain market share and sustain employment in a strategic sector. The move also puts pressure on high-cost rivals, potentially accelerating the long-term shift of primary aluminum production to regions with cheaper energy and looser environmental constraints. Western governments have criticized the practice, but meaningful trade barriers have been slow to materialize. The episode underscores the challenge of balancing free-trade principles with the need to protect energy-intensive industries that are vital to Europe's automotive, aerospace and construction supply chains.

What This Means for European Smelters and Policymakers

For European aluminum producers and the officials who regulate them, the current decoupling of gas and aluminum prices demands a clear-eyed response. Several concrete steps are already on the table and follow directly from the dynamics described by Brooks:

• Prepare for a potential EU anti-dumping review. The surge in Chinese exports, coming on top of the 2022 experience, supplies the evidence the European Commission would need to launch an investigation. Producers should collate shipment data and profit-margin evidence now.
• Secure long-term power purchase agreements. With TTF gas prices again approaching the panic levels seen in March, the cost of spot-market electricity is unsustainable for many smelters. Locking in fixed-price renewable or nuclear power contracts can insulate a portion of production from gas-driven spikes.
• Advocate for targeted state-aid flexibility. The squeeze is a textbook case of an external shock affecting a strategic energy-intensive industry. Industry associations can press for temporary relief on grid fees or for expanded compensation for indirect carbon costs, arguing that the current plight results from a market distortion, not a normal business cycle.
• Reassess product mix and geographical exposure. Smelters that rely heavily on standard primary aluminum ingot sold at London Metal Exchange-linked prices are the most exposed. Shifting a larger share of capacity toward value-added products—billet, slab, or specialized alloys—can partly decouple revenue from benchmark prices that Chinese exports are depressing.

Each of these measures directly addresses the anomaly identified by Brooks: the rising cost of energy alongside a flat revenue line. Short of a rapid change in Chinese export policy or a dramatic fall in European gas prices, the onus is on the region's industry and governments to act.