China's aluminium rod market cools as export orders shrink, processing fees slide

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Recently, the domestic aluminium rod market has cooled down from its previous heated state. With no substantial increase in actual demand at present, the demand void triggered by the contraction of export orders continues to ferment. The mismatch between supply and demand in the market has intensified.

Trading sentiment continues to weaken, while overall industry output remains stubbornly high. Under these dual pressures, the destocking progress of aluminium rods has been significantly hindered, leading to an oversupply of market goods and simultaneous downward pressure on processing fees.

Judging from weekly production data, after experiencing a highly prosperous production period in the second quarter, output in the aluminium rod industry has cooled down for the first time in this cycle. Currently, overall domestic aluminium rod production remains at a high level; however, looking at individual producers, the willingness to schedule production has noticeably weakened.

Previously, demand was supported by concentrated deliveries of export orders and the backing of State Grid orders, coupled with the gradual commissioning of new capacity projects, which collectively drove aluminium rod output higher. At this stage, overseas orders have weakened, early orders for aluminium rod manufacturers have been largely digested, and the market has generally shifted from previous full-capacity production scheduling to production based on sales. As a result, weekly output has seen a slight decline.

In terms of processing fees, aluminium rod processing fees have recently shown a general trend of downward pressure. Processing fees in multiple regions continued to be lowered during the week, with major consumption areas seeing a widespread drop of RMB 50-100 per tonne week-on-week. Looking at regional trends, as of July 24, processing fees in leading producing provinces such as Shandong and Henan, which had previously led the rally, have retreated to the range of  RMB 400-500 per tonne.

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Inner Mongolia and Guangxi regions have also followed the downward trend to around RMB 250-300 per tonne. So far, processing fees across various regions have basically wiped out the premiums accumulated earlier from the brief export stimulus, initially falling back to their normal valuation levels for the year.

From an inventory perspective, trading activity in the current aluminium rod market is gradually cooling. After the successive delivery of previous orders, the follow-up of new orders has been weak, failing to offset the shipment gap, and the overall destocking process for aluminium rods has stalled.

According to a Mysteel survey, total aluminium rod inventories at factories exceeded 10,000 tonnes during this period, rising week-on-week. The core reason for this round of inventory buildup remains the phased demand gap in the market. Overseas export orders have shrunk, the domestic market is in a consumption off-season, downstream cable companies generally maintain a cautious purchasing mindset with low restocking willingness, primarily maintaining just essential replenishment.

Lacking support from substantial terminal demand growth, upstream producers have passively slowed their production pace, but the existing inventory formed by previous high output cannot be digested in time, ultimately driving up factory stocks.

Overall, the current aluminium rod market is in a game stage between high production volumes and marginal weakening of demand. In the short term, with the consumption off-season and the closure of export profit windows leading to insufficient new orders, the support on the demand side for aluminium rods has weakened. Unless terminal demand shows significant improvement, processing fees are expected to remain under pressure in the near term until they hit the cost line or welcome a new influx of orders.

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Note: This news is published under a content and exchange agreement with Mysteel