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

Calm waters prevail! Since April, the domestic supply of primary aluminum billets has remained stable. Despite the tariff war initiated by the US since early April, which once caused a stir in the domestic aluminum market, with the mosttraded SHFE aluminum contract briefly touching the 19,000 yuan/mt level, the aluminum price, significantly dragged down by the macro front, has 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 have maintained an orderly production pace, with the daily average production of domestic primary aluminum billets in April increasing slightly by 10,000 mt MoM from March to approximately 49,000 mt/day.

According to the latest monthly survey data from SMM, there are currently 173 sample enterprises in SMM's monthly survey of primary aluminum billets, an increase of 4 from the previous month, with a total capacity of 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), representing a 1.4% decline, and a decrease of 4,000 mt YoY, representing a 0.3% decline. The operating rate of domestic primary aluminum billets in April was 55.4%, a 1.9% decrease MoM. Regionally, due to fewer effective operating days in April, among the major provinces with aluminum billet capacities exceeding 1 million mt nationwide, except for Yunnan, Guangxi, and Xinjiang regions, where production increased slightly MoM driven by new investments or production increases in some aluminum billet enterprises, the 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 offseason and peak season, downstream demand for domestic aluminum billets and aluminum extrusions has remained stable and slightly better than expected. In mid-to-late May, current consumption still shows resilience, with the center of processing fees moving higher and orders at billet mills remaining optimistic. Additionally, the easing of Sino-US relations has 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, have maintained low in-plant inventory levels. In mid-May, domestic aluminum billet in-plant inventory was approximately 86,300 mt, with an average inventory duration of only 1.8 days. The market is dominated by truck shipments, and combined with the recent substitution effect of aluminum rods, the supply of aluminum billets has tightened somewhat, leading to continuous destocking of aluminum billets. SMM expects that there will be further downside room for aluminum billet inventory in mid-to-late May, and it is still necessary to closely monitor consumption and arrival situations in the future. Although processing fees have recently maintained a range-bound consolidation level, the center has consistently remained near the key cost warning line of 300 yuan/mt, with most aluminum billet producers still inclined to maintain their current production pace. SMM expects that domestic primary aluminum billet production in May will remain stable and slightly increase to approximately 1.49 million mt compared to May.