Oversupply of aluminum rod persists, processing fees remain stable at low levels, watch the pace of demand recovery [SMM Analysis]

Sep 1, 2026

According to SMM statistics, as of August 28, days of inventories at domestic aluminum rod plants stood at 8.10 days, down 0.46 days WoW from 8.56 days on August 21. The inventory ratio fell from 110.10% to 105.14%, down 4.96 percentage points, though the absolute inventory level remained in the high range for the year. Over the same period, the combined operating rate of leading aluminum rod producers came in at 72.96%, flat WoW, consolidating after four consecutive weeks of declines and staying at a relatively low level. The WoW decline in inventories was mainly driven by a recovery in market buying sentiment, as downstream restocking helped draw down in-factory inventories. Meanwhile, persistently low operating rates indicate that the oversupply in the aluminum rod market has not fundamentally changed, with weak order backlogs weighing on producers' willingness to schedule production. With the absolute inventory level still high but downstream purchase willingness improving marginally, inventories are expected to continue destocking at a mild pace. Operating rates, constrained by the supply-demand imbalance, are likely to consolidate at lows in the near term. Attention should be paid to the boost to production schedules from exports and State Grid orders.

Aluminum prices drifted higher this week, rising from 23,740 yuan/mt last Tuesday (August 25) to 24,110 yuan/mt this Tuesday (September 1), a cumulative gain of about 370 yuan/mt. The rise in aluminum prices exerted some pressure on processing fees. As of September 1, aluminum rod processing fees across regions remained broadly stable compared with last Tuesday (August 25): Shandong at 200 yuan/mt (flat), Inner Mongolia at 150 yuan/mt (flat), Henan at 300 yuan/mt (flat), Jiangsu at 400 yuan/mt (flat), Hebei at 300 yuan/mt (flat), and Guangdong at 400 yuan/mt (flat). Processing fees in all regions remained at low levels for the year, reflecting the ongoing oversupply in the aluminum rod market and resistance to upward movement in processing fees. However, buying sentiment improved slightly, and downstream restocking demand was released in phases. That said, processing fees remained below processing costs, which provided some support. Given that absolute inventory levels are still high and the supply-demand imbalance is unlikely to be fundamentally reversed in the short term, but with demand gradually recovering, downside room for processing fees is expected to be limited. The center of processing fees is likely to gradually move higher, while regional price spreads may hold at current levels.

The operating rate of China's aluminum wire and cable industry stood at 63.0% this week, up 0.6 percentage points WoW, with the weekly rebound mainly driven by a recovery in production pace. Earlier, weather conditions in Jiangsu caused some disruption to production. With timely replacement of relevant auxiliary materials, the impact gradually faded, and previously delayed production schedules resumed, providing direct support to operating rates. Order side, the total winning bid amount for wire products in China Southern Power Grid's first batch of framework tenders in 2026 reached 1.645 billion yuan, providing visible demand support for H2 operating rates. The framework agreements are expected to be signed in mid-to-late September, and after the first batch of orders is gradually issued in Q4, the boost will be progressively realized. On the production schedule front, enterprises reported that power grid projects will restart in late September, and manufacturers have already been asked to stockpile in advance to facilitate subsequent cargo pick-up. Operating rates are expected to improve in September and return to peak-season levels in October. On the export side, the export window for aluminum stranded wire remains in a dynamic opening and closing state, with limited new order intake and mild boosting effects. Overall, with short-term disruptions cleared and tender order expectations materializing, the industry operating rate is expected to continue its mild recovery. Going forward, attention should be paid to the cargo pick-up pace of China Southern Power Grid's framework orders and the execution of State Grid projects.