The center of processing fees has risen since April, while the supply side of aluminum billets has maintained a stable performance [SMM Analysis]

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SMM News on May 25:

Calm waters! The domestic supply of primary aluminum billets has remained stable since April. Despite the tariff war initiated by the US in early April, which once caused a stir in the domestic aluminum market, with the most-traded SHFE aluminum contract briefly touching the 19,000 yuan/mt level, the aluminum price, heavily dragged down by the macro front, allowed aluminum billet processing fees to surge significantly. In May, as aluminum prices gradually recovered above the 20,000 yuan/mt level, processing fees came under some pressure. However, due to downstream exports being less affected by the tariff war than expected and overall stable domestic demand during the transition between the off-season and peak season, the destocking of social inventory of aluminum billets significantly exceeded expectations, keeping the center of aluminum billet processing fees consistently above the key cost warning line of 300 yuan/mt. Aluminum billet enterprises across the country maintained an orderly production pace. The daily average production of domestic primary aluminum billets in April increased slightly by 10,000 mt MoM from March to around 49,000 mt/day.

According to SMM's latest monthly survey data, there are currently 173 enterprises in SMM's monthly survey sample for primary aluminum billets, an increase of 4 from the previous month; the total capacity is 31.805 million mt, an increase of 600,000 mt from the previous month. In April 2025 (30 days), the total domestic production of primary aluminum billets was 1.468 million mt, a decrease of 21,000 mt MoM from March 2025 (31 days), down 1.4%; and a decrease of 4,000 mt YoY, down 0.3%. The operating rate of domestic primary aluminum billets in April was 55.4%, down 1.9% MoM. Regionally, due to fewer effective operating days in April, among the major provinces with aluminum billet capacities exceeding 1 million mt, except for Yunnan, Guangxi, and Xinjiang, where production increased slightly MoM driven by new investments or production increases in some aluminum billet enterprises, production in Shandong, Inner Mongolia, Gansu, Qinghai, and Guizhou all declined to varying degrees, while production in other aluminum billet-producing provinces showed mixed performance.

Overall, during the transition between the off-season and peak season, downstream demand for domestic aluminum billets and aluminum extrusions remained stable and slightly better than expected. In mid-to-late May, current consumption still showed resilience, with the center of processing fees moving higher and rod mills' order books remaining optimistic. Additionally, the easing of Sino-US relations to some extent stimulated end-use consumption, further driving down aluminum billet inventory. Against the backdrop of better-than-expected demand in off-season, aluminum billet enterprises, which produce based on sales, maintained low in-plant inventory. In mid-May, domestic aluminum billet in-plant inventory was approximately 86,300 mt, with an average inventory of only 1.8 days. The market was dominated by truck shipments. Coupled with the recent substitution effect of aluminum rods, the supply of aluminum billets tightened, leading to continuous destocking of aluminum billets. SMM expects that aluminum billet inventory will have further downside room in mid-to-late May, and it is still necessary to closely monitor consumption and arrivals in the subsequent period. Although processing fees have remained range-bound recently, the center has consistently hovered near the critical cost warning line of 300 yuan/mt. Most aluminum billet producers still prefer to maintain their current production pace. SMM expects that domestic primary aluminum billet production in May will likely remain stable or slightly increase to around 1.49 million mt compared to the previous month.

Data source: SMM Click on the SMM industry database for more information.