SMM, August 30:
As August drew to a close, looking back at China's aluminum billet market this month, "divergence" and "pressure" were the two most distinct key words. On one side was the resilient, eye-catching performance of aluminum prices; on the other was the continued slump in aluminum billet processing fees. Foshan φ120 aluminum billet processing fees trended lower from 180 yuan/mt at the end of July, briefly touched a historic low of 30 yuan/mt intraday on August 12, and as of August 28 were quoted at only 110 yuan/mt, clearly below the industry's average production cost line. Aluminum billet social inventory accumulated for four consecutive weeks to a period high of 144,500 mt, spot trades cooled several times, and suppliers' willingness to sell for cash and downstream wait-and-see sentiment repeatedly pulled back and forth, leaving market participants increasingly fatigued...
I. Aluminum Prices and Processing Fees: Seesaw Effect Throughout the Month
The "seesaw" relationship between aluminum prices and processing fees persisted throughout the month, as Foshan, Wuxi, and Nanchang simultaneously experienced a full roller-coaster ride. At the end of July, aluminum prices rebounded, downstream acceptance of high-priced aluminum billet dropped sharply, and processing fees began to fall broadly; Foshan φ90/φ120 fell by 120 yuan/mt to 230/180 yuan/mt, respectively. In mid-August, aluminum prices shot up to a period high, and processing fees fell to their lowest level of the month; the weekly average for Foshan φ120 was only 110 yuan/mt and briefly touched 30 yuan/mt mid-week, Nanchang tumbled 170 yuan/mt in a single week, and only Wuxi stayed relatively firm because of tight arrivals and limited supply. In the week of August 20, aluminum prices pulled back sharply from highs. Producers strongly held prices firm on the back of earlier high-cost raw material inventory, and processing fees staged a sharp rebound—Foshan φ90/φ120 rose by 150 yuan/mt to 310/260 yuan/mt, Wuxi φ120 jumped 200 yuan/mt to 500 yuan/mt, and Nanchang surged by as much as 250 yuan/mt. In the final week of August, aluminum prices stopped falling and rebounded, downstream wait-and-see sentiment heated up again, and processing fees gave back gains across the board: Foshan φ120 returned to a low of 90 yuan/mt, Wuxi φ120 tumbled 260 yuan/mt to 240 yuan/mt, and Nanchang also dropped by 250 yuan/mt.
Looking at the entire month, Foshan φ120 processing fees went from 180 yuan/mt to 90 yuan/mt, with an extreme low of 30 yuan/mt and a rebound high of 260 yuan/mt along the way. Notably, every rebound struggled to win downstream acceptance and was quickly given back, fully reflecting the structural weakness in suppliers' bargaining power—price hikes were met with wait-and-see sentiment, while only price declines could move volumes, making volume discounts the default choice out of necessity.
II. Supply Side: Inertial Pressure After Operating Rate Hit a YTD High
Continuous supply-side expansion was the root cause of pressure on processing fees. According to SMM data, the operating rate of China's aluminum billet industry rose 1.1 percentage points MoM to 58.3% in July, up 5.2 percentage points YoY, hitting a YTD high and the highest level for the same period in nearly three years. Benefiting from strong processing fees in Q2, producers generally raised output or ran at full capacity, driven by profits. Supply-side adjustment also had a clear lag—while processing fees pulled back from June highs, the supply side continued to move higher in July on inertia.
In August, although processing fees had fallen below the industry average production cost line and a small number of enterprises began to adjust production strategies and cut or halt production ahead of schedule, the overall contraction was limited: earlier orders still needed to be delivered, so operating rates remained rigid; capacity in south-west China continued to be released, and cargoes from Xinjiang, Qinghai and other regions also flowed into South China in batches due to attractive price spreads, creating a mismatch between ample supply and weak demand. SMM expects the August operating rate to pull back to around 56.9%; the direction of a supply-side retreat from highs is clear, but the pullback will be mild and unlikely to reverse the oversupply pattern.
III. Inventory and Warehouse Withdrawals: First Destocking After Continuous Inventory Buildup
The inventory trend also clearly illustrated the evolution of the supply-demand imbalance. According to SMM statistics, aluminum billet inventory in major consumption areas in China accumulated continuously from 119,500 mt on July 30 to an interim high of 144,500 mt on August 24, with total inventory reaching the highest level for the same period in nearly five years. Foshan was the main driver of the buildup—its inventory increased from 53,500 mt at the end of July to a high of 67,500 mt on August 24, up 26% MoM. The off-season for consumption, combined with continuous arrivals, caused the South China market to bear the brunt.
Warehouse withdrawal data directly reflected downstream sentiment. SMM data showed that weekly warehouse withdrawals fell from 35,500 mt at the end of July to a YTD low of 27,500 mt in the week of August 10, with Foshan at just 6,000 mt, down nearly 40% WoW. Subsequently, after two sharp declines in aluminum prices prompted restocking at lows, warehouse withdrawals recovered to 36,500 mt in the week of August 24, with Foshan rebounding to 13,000 mt that week, driving national inventory down to 139,500 mt on August 27 and ending the streak of inventory buildup; Foshan inventory also fell to 62,500 mt over the same period. However, this round of destocking should be viewed calmly, as it was driven more by a slowdown in the pace of arrivals and pulse restocking stimulated by falling prices than by a trend recovery in demand, and the foundation of the inventory turning point was not solid.
IV. Demand Side: Off-Season Combined with High Prices; Restraining Factors Piling Up
Demand-side weakness had more pronounced seasonal and structural characteristics. As a traditional consumption off-season, August had an especially severe impact on the Guangdong market, which is dominated by construction material consumption: new orders were scarce and enterprises already had weak purchasing willingness; the continued rise in aluminum prices sharply lifted the absolute price of aluminum billets, and surging costs further cooled downstream purchasing sentiment, with even rigid-demand purchases favoring lower-priced options.
A deeper change was that downstream acceptance of high processing fees is naturally limited—if processing fees stayed high, some profile enterprises had already shifted to remelting aluminum ingots as substitute procurement, creating a hard-to-break ceiling for processing fees. Combined with marginally weakening export momentum as the price spread between Chinese and overseas markets narrowed, low-price volume sales gradually became the norm, further weakening the downside resilience of processing fees.
On the supportive side, supply-side constraints from tightening liquid aluminum supply continued, and the passive production cut situation at some billet plants in the southwest was unlikely to improve fundamentally in the near term, still providing some floor for processing fees. However, four consecutive weeks of inventory buildup in August had already significantly weakened low-inventory support, and the risk of inventory buildup materializing again later warranted caution.
V. September Outlook: Peak Season Strength to Be Tested; Limited Room for Processing Fee Recovery
Looking ahead to September from the end of August, the market still held some expectations for the "September peak season"—a small number of downstream buyers in certain product categories had begun early discussions on September production schedules, but large-scale front-loaded restocking had not yet started. SMM believes the aluminum billet market in September will face a tug-of-war among multiple factors:
Supply side: as processing fees fall below the cost line, more billet plants will be forced into production cuts or halts. Operating rates are expected to continue pulling back, with supply pressure easing marginally. However, this is passive contraction rather than proactive improvement, so its support for processing fees is limited.
Demand side: the direction of peak season consumption recovery is relatively certain, but its elasticity should not be overestimated—demand release is more likely to unfold gradually and is unlikely to see an explosive surge. Moreover, if aluminum prices stay high, high costs will continue to suppress downstream purchasing willingness.
Inventory side: as arrival pressure eases and peak season demand improves marginally, inventory in early September is expected to continue the destocking momentum seen at end-August. However, if supply-side contraction falls short of expectations, inventory buildup could still re-emerge in mid-to-late September.
Overall, SMM expects China's aluminum billet processing fees in September to consolidate at lows within the current low range. There will be periodic recovery opportunities but limited room, and the main trading range for Foshan φ120 processing fees may remain below the cost line. The absolute level of national aluminum billet inventory will remain high compared with the same period in recent years, and the pace of destocking will depend on the actual implementation of production cuts at billet plants and the fulfillment of peak season orders.
For aluminum billet enterprises, the "September peak season" is more like a long and arduous test—whether moving forward under the weight of below-cost operations can see a turn for the better still depends on a cautious view of demand recovery strength and the direction of aluminum price fluctuations.
Data source: SMM
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