Drivers of negative aluminium billet processing fees- When will the market reverse?

On January 5, 2026, the first trading day after the New Year's holiday, the SMM A00 aluminium price surged by RMB 850 per tonne in a single day, surpassing the largest single-day increase of any day in 2025. As a result, aluminium billet processing fees across regions rapidly pulled back, generally decreasing by RMB 0–160 yuan per tonne, but still remaining above the zero line. However, on the following day, January 6, 2026, the aluminium price soared another RMB 600 per tonne, initiating an extreme market trend that lasted nearly two weeks, aluminium billet processing fees fell below the zero line and entered negative territory.

Against the backdrop of aluminium billet production costs generally maintained at RMB 200–300 per tonne, why did "negative processing fees" occur? To understand this anomaly, it is necessary to analyse from the perspectives of both aluminium billet producers and traders.

First, from the perspective of aluminium billet producers, they can be categorised into two types:

One type consists of enterprises with their own aluminium capacity, capable of directly using self-produced liquid aluminium to cast aluminium billets; the other type needs to purchase aluminium externally as raw material, typically adopting a settlement model of "monthly average aluminium price + local liquid aluminium discount."

For the former, according to SMM calculations, the current national weighted full cost of aluminium is approximately RMB 16,000–16,500 yuan per tonne. Based on the post-holiday A00 aluminium price, the profit per ton is as high as RMB 7,000–8,500. Even after deducting RMB 200–300 per tonne processing cost, there is still substantial profit. Therefore, these enterprises have a strong incentive to lower processing fees to accelerate sales, quickly recover funds, and lock in profits.

For the latter (externally purchased type), the situation is more complex. If the in-factory inventory consists of aluminium billets produced between November 26, 2025, and December 25, 2025, calculated at the then SMM A00 aluminium average price of RMB 21,800 per tonne, even without hedging, a hidden profit of RMB 1,500–2,800 per tonne has already been formed under the current high aluminium prices. Due to the pressure to realise gains, these enterprises also tend to actively reduce processing fees and quickly destock. For new aluminium billets produced in January, profitability remains uncertain and will depend on the final monthly average price from December 26, 2025, to January 25, 2026. However, under the dual pressures of tight cash flow and inventory buildup, manufacturers still choose to follow the market pace and further reduce processing fees to alleviate financial turnover pressure.

Second, from the perspective of traders, their actions also contributed to the formation of negative processing fees.

There are mainly three types of typical traders in the market:

Traders who take delivery based on the "monthly average price + fixed processing fee" model: their logic is similar to that of externally purchased type manufacturers. If not fully hedged, the low-cost inventory from earlier periods has generated significant price spread profits under the current high base price, thus they are eager to realise gains;
Traders who take spot orders and simultaneously hedge with futures: these entities, after processing fees fell into negative territory, actively purchased low-cost inventory while locking in risks on the futures market, waiting for processing fees to recover before selling to earn the price difference.

Speculative traders who operate unilaterally and do not hedge: their strategy is relatively simple—stockpile at low prices before the holiday and sell at high prices after the holiday, profiting from the spot price difference due to rising aluminium prices.
In summary, the sustained negative processing fees for aluminium billets were not solely due to supply-demand imbalance but were the result of multiple parties collectively realising profits and accelerating cash flow under a high-profit background.

When will this round of "negative processing fees" end?

Currently, signs of recovery are beginning to emerge. As of January 16, 2026, the processing fees for aluminium billets in Foshan were reported at – RMB 30/20 per tonne, up RMB 20 per tonne from the previous day; in Wuxi, the fees were – RMB 50/50 per tonne (for φ90 aluminium billets), up RMB 50 per tonne; in Nanchang, the fees remained at – RMB 150/-100 per tonne, holding steady. Although still in negative territory, processing fees in various regions have generally rebounded by RMB 150–170 per tonne from their previous lows, gradually moving towards parity.

As the high-profit inventory is gradually absorbed by the market, the impulse to realise gains among relevant parties will weaken. Coupled with the continuous decline in the operating rates of aluminium billet producers and reduced new supply, the pace of inventory buildup is expected to slow down. Driven by both sellers and buyers, processing fees are likely to return to a reasonable range of RMB 0–200 per tonne in the coming period.

Note: This article has been issued by SMM and has been published by AL Circle with its original information without any modifications or edits to the core subject/data.