SMM July 24:
1. Aluminum Billet Inventory Turns from Destocking to Buildup, Destocking Narrative Has Changed
According to SMM data, on July 23, social inventory of aluminum billets in major consumption areas in China recorded 121,000 mt, up 1,000 mt from last Monday and up 6,500 mt from last Thursday, marking two consecutive weeks of buildup. From a year-on-year comparison, current inventory was 24,500 mt lower than the same period in 2025, 10,200 mt lower than in 2024, but 45,900 mt higher than in 2023. Although the absolute inventory level is still lower than in the same period over the past two years, the destocking narrative has clearly shifted—from rapid destocking in June to a buildup in July, thereby weakening support for processing fees.
Looking at warehouse withdrawal data, China's aluminum billet withdrawals from July 14 to July 20 were recorded at 33,000 mt, down 9,100 mt WoW and 19,000 mt YoY compared with the same period in 2025. The sharp decline in withdrawals directly reflects weakening downstream procurement sentiment and a notable decline in market trading activity. From a regional perspective, arrivals in the Foshan area continued to increase, with inventory building up to a staged high of 53,000 mt, becoming the main contributor to this round of buildup; in the Wuxi area, some shipments were allocated and dispatched, reducing arrivals, and although this was partially offset by downstream purchases, inventory still increased by 1,000 mt. Under the combined effect of supply-demand dynamics, the cushioning effect of low inventory on processing fees is gradually weakening.
2. Processing Fees Decline Broadly, with Significant Regional Divergence
During the week, the center of aluminum prices consolidated on a steady note, with the SMM A00 spot aluminum price edging up slightly from 23,170 yuan/mt last Thursday to 23,260 yuan/mt. Under the combined pressure of steady-to-slightly-higher aluminum prices and continued rising arrivals in South China, aluminum billet processing fees in various regions fell broadly.
Looking at the trends of φ120 processing fees in the three regions, South China was undoubtedly the hardest hit in this round of processing fee pullback. The domestic aluminum billet production cost line currently sits around the 250-300 yuan/mt range, varying due to regional factor cost differences. As of July 23, the φ120 processing fee in Foshan had fallen to 300 yuan/mt, just at the upper end of the cost range, squeezing corporate profits near the break-even point. In Wuxi, due to tight supply of small-size billets, the decline in φ90 was relatively limited, indicating that structural tightness in certain specifications still provided some support for processing fees. However, φ120 also dropped by 90 yuan/mt, signaling increasing supply pressure for large-size billets. In Nanchang, the decline was relatively small, reflecting a more stable supply-demand pace in the local market.
Near the weekend, as of July 24, the average φ120 processing fee in Foshan had fallen to 270 yuan/mt, below the lower end of the 250-300 yuan/mt cost range. Downstream wait-and-see sentiment remained unchanged, purchasing demand was weak, and buyers pushed for significantly lower prices based on the futures market. It was the last day of monthly long-term contract settlement; because the day's price was notably higher than the monthly average, some suppliers had huge room to sell, and there was no lack of sellers dumping at much lower prices. Although some suppliers, who were actually selling at a loss, chose to hold prices firm and not sell, this could not prevent processing fees from declining further.
3. Demand Side: Extrusion Operating Rates Decline, Off-Season Characteristics Deepen
The continuous decline in processing fees was fundamentally driven by marginal weakening on the demand side. According to SMM survey, this week, China's weekly aluminum extrusion operating rate recorded 52.9%, down 0.4 percentage points WoW, extending the weak trend in the off-season. Looking at subsectors, construction extrusions were dragged down by the deepening off-season and continued weakness in the property market, with end-use demand further weakening. Downstream clients became more cautious in procurement, mainly focused on rigid demand and urgent orders, with new orders declining, significantly weighing on the overall operating rate.
Industrial extrusions showed some resilience. Some sampled enterprises benefited from ample orders on hand in the energy storage sector, maintaining relatively full production schedules. For PV frames, top-tier players' production schedules remained generally stable, with downstream module makers' Q3 production schedules expected to be slightly higher than Q2, which will underpin frame demand. However, SMM believes that the marginal support from industrial extrusions is not enough to fully offset the weakness of construction extrusions during the off-season, and acceptable processing margins do not necessarily imply a corresponding expansion in end-use consumption, so whether warehouse withdrawals can be sustained still needs verification. Overall, downstream purchases remained mainly rigid demand, spot market trading sentiment was mediocre, and the capacity to absorb processing fee pressures was limited.
4. Supply Side: Rising Arrivals and Production Enthusiasm Increase Pressure on Processing Fees
From the supply side, the continuous increase in arrivals in South China was the direct trigger for the rapid pullback in processing fees this round. Foshan's inventory built up to a stage high of 53,000 mt, reflecting that stimulated by previously high processing fees, billet plants accelerated their shipment pace while local demand failed to keep pace, resulting in regional supply loosening. In addition, although processing fees in Wuxi and Nanchang were relatively resilient, overall aluminum billet production enthusiasm across the country remained relatively high. Once processing fees fell below the cost line, enterprises would make marginal adjustments through production cuts and maintenance, but in the short term, the pace of supply release was still faster than that of demand recovery.
5. Can Processing Fees Hold Up?
Taking the overall supply-demand pattern into account, whether domestic aluminum billet processing fees can hold near the cost line depends on the following core variables:
Downward pressure persists: Firstly, inventory has been building for two consecutive weeks, warehouse withdrawals have contracted sharply WoW, and the off-season demand characteristics have not ended. Secondly, the arrival pace in Foshan has slightly accelerated, and the relatively loose supply pattern in South China is hard to fundamentally reverse in the short term. Thirdly, end-use orders for construction extrusions are weak, downstream price-cutting procurement has become the norm, and processing fees lack upward driving force from the demand side. Fourthly, even though processing fees have retreated to the 250-300 yuan/mt cost range, billet plants' willingness to cut production in the short term remains limited, and the pace of supply-side exit is slow.
There are still some supports at this stage: Firstly, the absolute inventory level is still lower than the same period in 2024 and 2025, overall inventory pressure has not completely lost control, and once the arrival pace slows or demand marginally recovers, destocking logic may be re-established. Secondly, small-size billet supply in Wuxi and other places remains tight, and structural shortages in certain specifications underpin local processing fees. Thirdly, orders in new energy sub-sectors such as energy storage and PV within industrial extrusions remain resilient, which can offset the construction extrusion off-season to some extent. Fourthly, if aluminum prices experience a temporary pullback, it may stimulate downstream restocking at lower prices, thereby driving a recovery in processing fees.
SMM view: In the short term, aluminum billet processing fees have entered a phase of pressure, with mainstream specifications such as Foshan φ120 retreating from previous highs to the 250-300 yuan/mt production cost range, and some low-priced cargo even falling below the lower end of the cost line. The room for further sharp decline is constrained by cost, but the momentum for holding prices firm and rebounding is also insufficient. It is expected that processing fees in various regions will continue to diverge next week: in South China, there is still downside room under supply-demand pressure, and some low-priced cargo may continue to trade below the cost line; in Wuxi, supported by the tight supply of small-size billets, prices will be relatively resilient, but large-size billets also face adjustment pressure. Overall, processing fees are likely to consolidate on a subdued note near the cost line. A genuine stabilization and rebound will need to wait for signals such as inventory destocking resuming, warehouse withdrawals rebounding, and a material improvement in end-use orders.
Conclusion: Currently, aluminum billet processing fees have retreated to around the 250-300 yuan/mt production cost line. The average φ120 processing fee in Foshan had fallen to 270 yuan/mt as of July 24, and some low-priced cargo had already fallen below the cost line. In theory, cost constraints limit the downside room, but against the backdrop of weak off-season demand, inventory shifting from destocking to buildup, and increased supply circulation in South China, it is quite difficult for processing fees to hold up. In the short term, they are likely to consolidate on a subdued note, with focus on the pace of arrival absorption in South China, downstream purchasing strength, and marginal changes in industrial extrusion orders.
Data source: SMM
![China's aluminum billet processing fees pull back to near production cost levels, will they hold? [SMM Analysis]](https://imgqn.smm.cn/usercenter/RLjGN20251217171652.jpg)
