Aluminium Billet Production Faces June Pullback After Record High Output

Aluminum Billet Production Trends: Will June See a Pullback After Months of High Output?

After maintaining robust production levels throughout the first half of 2025, China's aluminum billet sector stands at a critical inflection point as June draws to a close. With processing fees plummeting and inventories rising, the industry faces significant headwinds that could reverse months of steady growth.

What Has Been Happening with Aluminum Billet Production in Recent Months?

Record-High Production Levels Through May 2025

Primary aluminum billet production in China has demonstrated remarkable resilience, maintaining abundant supply levels since early 2025. According to the latest Shanghai Metal Market (SMM) data, daily average production held steady at approximately 49,000 mt/day in May, unchanged from April's strong performance.

The total output for May 2025 reached an impressive 1.509 million metric tons, representing a 2.8% increase month-over-month (+41,000 mt) and a significant 3.6% rise year-over-year (+52,000 mt). This sustained high production rate has established a new benchmark for the industry during this period.

Operating rates at domestic primary aluminum billet facilities climbed to 56.9% in May, a 1.5 percentage point increase from April levels. This expansion occurred despite typical seasonal pressures, highlighting the sector's operational efficiency and market confidence through spring 2025.

"Against the backdrop of the liquid aluminum proportion still having upward momentum, aluminum billet enterprises across the country maintained a high-intensity production pace in May," noted SMM analysts in their June 22 report.

Key Factors Supporting High Production

Several interconnected factors have contributed to these sustained production levels:

• Tight inventory situation: Social inventories remained near three-year lows for comparable periods, creating market tension
• Stable processing economics: Processing fees hovered around the critical cost warning line of 300 yuan/mt through May
• Optimized production flow: The liquid aluminum proportion (direct casting vs. ingot remelting) continued its upward trajectory
• Resilient export markets: Foreign demand proved stronger than anticipated despite ongoing tariff concerns
• Balanced domestic consumption: The transition between off-season and peak season maintained relatively stable domestic offtake

Industry experts point to the minimal impact of the May Labour Day holiday on production levels as evidence of producers' commitment to maintaining output despite temporary demand fluctuations.

How is the Market Situation Evolving in June 2025?

Market Dynamics Shifting Dramatically

The aluminum billet landscape has transformed dramatically in June, with multiple factors converging to create significant market pressure.

First, critically low inventory levels both domestically and internationally triggered what SMM describes as market "cornering" sentiment—where limited supplies create artificial price pressure. This dynamic has pushed spot aluminum prices sharply upward, approaching the psychologically important 20,000 yuan/mt threshold.

However, this price surge has created its own problems. The sustained high aluminum prices have begun actively suppressing consumption across various sectors. According to SMM's latest survey data, the downstream fabrication sector is exhibiting increasingly pronounced off-season characteristics, with all types of end-use demand showing notable weakness.

"The sustained high aluminum prices suppressed consumption, coupled with the increasingly strong off-season atmosphere in the downstream sector and weakening of all types of end-use demand, aluminum billet destocking momentum was sluggish."

This has created a troubling scenario where aluminum billet manufacturers face increasing inventory pressure without the ability to pass costs downstream effectively.

Processing Fee Collapse

Perhaps the most alarming development has been the rapid deterioration of processing fees in June. These fees—the premium charged over base aluminum prices—have "plummeted" according to SMM analysis, indicating a fundamental deterioration in the supply-demand pattern.

The situation has become particularly dire in some consumption areas where processors report "zero processing fees" or even "negative processing fees"—a scenario where billet manufacturers effectively sell below their raw material and conversion costs.

This fee collapse has placed aluminum billet producers under severe inventory and financial pressures, forcing many to reconsider their production strategies for the remainder of June and into July.

What's Happening with Inventory Levels?

Inventory Buildup Approaching a Turning Point

The clearest evidence of market stress appears in the latest inventory statistics. By mid-June, in-plant inventories at domestic aluminum billet enterprises had reached approximately 107,700 metric tons—a substantial increase of 21,400 mt or 24.8% compared to the previous month.

Even more concerning for producers, the average inventory duration has extended to 2.2 days, up 0.4 days from May levels. While this might seem modest in absolute terms, this 22% increase in inventory duration signals weakening demand absorption capacity and potential oversupply conditions developing.

This inventory accumulation represents a significant shift from the tight supply conditions that characterized the market earlier in the year. According to SMM analysis, "The turning point for inventory buildup was approaching," suggesting the market may be entering a new phase of the supply-demand cycle.

Regional Production Patterns

When examining May's production data across various Chinese provinces, output increased broadly due to more effective operating days in the month. The China demand prospects demonstrated remarkable operational resilience, with minimal production impact from the Labour Day holiday period.

However, regional differences have begun emerging in producers' responses to current market challenges:

• Southwest China producers are showing greater willingness to consider production cuts given their specific cost structures and regional market dynamics
• Eastern and Central China operations appear more committed to maintaining output levels despite margin pressure
• Liquid aluminum proportion continued rising nationally in May, indicating ongoing efficiency optimization despite market headwinds

These regional variations will likely become more pronounced if processing fee pressures persist through June and into July.

Will Production Pull Back in June 2025?

Producer Responses to Market Challenges

Despite the deteriorating market conditions, most aluminum billet producers are maintaining cautious wait-and-see attitudes toward production cuts in the immediate term. SMM's industry survey indicates that companies are generally continuing to execute long-term contracts for liquid aluminum while making only marginal adjustments within flexible operational ranges.

This hesitancy to implement significant cuts reflects several strategic considerations:

• Contract commitments: Producers prioritize fulfilling existing customer agreements
• Operational efficiency: Frequent production adjustments can reduce overall efficiency
• Recovery anticipation: Many manufacturers expect a potential demand rebound in July
• Regional economics: Production costs vary significantly across different provinces

However, a notable exception appears in Southwest China, where some billet producers have shown greater willingness to reduce production in response to market pressures. This regional divergence may expand if processing fees remain depressed.

Production Forecast for June 2025

Based on current market conditions and producer responses, SMM projects a significant pullback from May's high production levels. The organization forecasts June production will fall to between 1.4 and 1.45 million metric tons—representing a reduction of approximately 4-7% from May's 1.509 million mt output.

This production reduction would mark an important reversal after several months of sustained high output and could signal a more extended adjustment period if market conditions fail to improve.

"If processing fees continue to remain low, it cannot be ruled out that the extent and scale of production cuts will further expand," warns the SMM analysis.

The aluminum industry now watches closely to see whether this anticipated pullback materializes as forecasted and whether it will be sufficient to rebalance the market.

What Are the Broader Market Implications?

Supply-Demand Balance Shifting

The aluminum billet market appears to be approaching a significant inflection point in the supply-demand cycle. After months of relatively balanced conditions, several indicators suggest a fundamental shift is underway:

• The turning point for inventory accumulation is clearly approaching, with mid-June stocks already up 24.8%
• Processing fee collapse indicates a severe market imbalance developing between production and consumption
• Producer economics have deteriorated rapidly, with some regions facing negative processing margins
• The potential for more widespread production cuts increases substantially if current conditions persist

These developments represent classic late-cycle behavior in commodity market volatility, where price signals eventually force supply adjustments to match changing demand conditions.

Price Dynamics and Market Sentiment

Spot aluminum prices have surged dramatically, approaching the psychologically important 20,000 yuan/mt threshold. However, this price strength masks underlying weakness in the fabrication chain:

• High prices are actively suppressing consumption across multiple end-use sectors
• Market "cornering" sentiment driven by historically low inventory levels appears increasingly disconnected from actual demand fundamentals
• The increasingly strong off-season atmosphere in downstream sectors suggests demand may weaken further before recovering

This divergence between raw material prices and fabrication economics creates significant market stress that will likely resolve through either price adjustments or more substantial production cuts in coming weeks.

What Factors Will Influence Future Production Decisions?

Key Variables to Monitor

Several critical variables will determine the extent and duration of any production pullback:

• Processing fee trends: If fees remain at zero or negative levels, production cuts will likely accelerate
• Inventory accumulation rates: Continued rapid stock building will force more aggressive adjustments
• Downstream demand recovery: Any signs of consumption improvement could stabilize the market
• Export market performance: International orders could provide a relief valve amid domestic weakness
• Spot aluminum price movements: Further price increases could worsen demand destruction
• Producer financial and inventory pressures: Cash flow challenges may force decisions regardless of strategic preferences

The interaction between these factors will shape production decisions through the remainder of June and into the third quarter.

Strategic Considerations for Producers

Aluminum billet manufacturers face complex strategic decisions in the current environment:

• Contract balancing: Producers must weigh long-term customer relationships against short-term financial pressures
• Inventory risk management: Rapidly accumulating stocks create both storage and financing challenges
• Production cut thresholds: Each manufacturer has different breaking points based on their cost structure
• Regional market assessment: Conditions vary significantly across China's aluminum production regions

The most financially flexible producers may gain competitive advantage by proactively adjusting output, while those with limited options may face more severe consequences if conditions deteriorate further. The ongoing mining industry evolution continues to impact how producers adapt to these market changes.

FAQ: Understanding Aluminum Billet Market Dynamics

What are processing fees in the aluminum billet market?

Processing fees represent the premium charged by aluminum billet producers over the base aluminum price. These fees cover conversion costs (energy, labor, equipment) and profit margins. When processing fees fall below approximately 300 yuan/mt—the "warning line" identified by SMM analysts—production becomes economically challenging for manufacturers. The recent collapse to zero or negative territory in some regions signals severe market imbalance.

Why have aluminum billet processing fees collapsed in June?

The processing fee collapse stems from multiple converging factors:

• Sustained high aluminum prices have suppressed consumption across fabrication sectors
• Intensifying off-season effects in downstream industries have reduced order volumes
• Weakening end-use demand across construction, transportation and consumer sectors
• Sluggish destocking momentum as buyers anticipate potential price corrections
• Continued high production levels despite deteriorating demand signals

This perfect storm has created a fundamental imbalance between supply and demand, forcing processors to accept minimal or negative margins to move inventory. The latest aluminium scrap assessments also reflect these challenging market conditions.

What does "liquid aluminum proportion" refer to?

This industry-specific term refers to the percentage of primary aluminum production that is processed directly into liquid form for immediate casting into products like billets, rather than being cast into standard ingots for later remelting. An increasing liquid aluminum proportion indicates more integrated and efficient production, reducing energy consumption and processing costs.

The upward momentum in this metric throughout early 2025 reflects producers' efforts to optimize operations despite challenging market conditions.

How do "zero" or "negative" processing fees impact producers?

When processing fees reach zero or negative territory, producers face severe operational challenges:

• Zero fees mean billet sales only cover raw aluminum costs and basic conversion expenses
• Negative fees indicate producers selling below combined raw material and production costs
• Financial losses accumulate with each ton produced, creating immediate cash flow pressure
• Inventory financing becomes increasingly expensive as stocks build
• Production cuts become inevitable once financial reserves are depleted

This unsustainable condition typically leads to production reductions as manufacturers cannot operate profitably, which eventually helps rebalance the market—though often only after significant financial damage occurs. The commodity prices impact on manufacturing performance becomes particularly acute in these scenarios, according to recent analysis from SMM.

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