Aluminum Processing Industry Weekly Analysis: Operating Rates Continue to Decline
The operating rate of downstream aluminum enterprises declined for the week ending July 10, with overall rates decreasing by 0.1 percentage points week-over-week to 58.6%. This continued downward trend reflects ongoing challenges across various aluminum sectors, with divergent performance patterns emerging among different product categories. These industry transformation trends are shaping the future landscape of aluminum processing.
Current Operating Rate Trends
The aluminum processing industry is experiencing pressure across multiple sectors, though with varying intensity. According to the latest SMM survey data, operating rates show significant differences between specialized segments:
| Aluminum Sector | Current Operating Rate | Weekly Change | Key Factors |
|---|---|---|---|
| Primary Aluminum Alloy | 54.0% | +0.2% | Liquid aluminum allocation, production cuts in billets |
| Aluminum Plate/Sheet/Strip | 63.2% | -0.6% | Weak demand, high aluminum prices |
| Aluminum Wire/Cable | 61.6% | -0.2% | Slow State Grid orders, high-temperature impacts |
| Aluminum Extrusion | 49.5% | Unchanged | Stable automotive sector, weak PV and construction |
| Aluminum Foil | 69.6% | Unchanged | Off-season demand, low processing fees |
| Secondary Aluminum | 53.6% | Unchanged | Raw material shortages, weak demand |
Why Are Operating Rates Declining?
The aluminum processing industry faces several significant challenges that are contributing to the declining operating rates across most sectors.
Traditional Off-Season Demand Weakness
July-August represents the traditional consumption off-season for aluminum products, creating predictable pressure on operating rates. This seasonal pattern has been intensified by:
- Hesitant buyers: Downstream customers showing increased reluctance to place orders
- Passive purchasing behavior: Just-in-time inventory management restricting forward buying
- Elevated inventories: Finished product stockpiles remain high at many processing facilities
- Capital preservation: Manufacturers prioritizing cash flow over production volume
High Aluminum Price Environment
Recent aluminum price increases have created significant headwinds for downstream processors:
- Margin compression: Rising input costs without corresponding finished product price increases
- Production plan adjustments: Manufacturers scaling back operations to match reduced demand
- Inventory reluctance: Processors avoiding building stock at current elevated price levels
- Cash flow pressure: Increased working capital requirements for raw material procurement
As one industry analyst noted, "The renewed strong rise in aluminum prices in the mid-to-late week partially suppressed downstream demand, with many processors reporting order postponements." Recent tariffs impact markets across various sectors, including aluminum processing.
Weather-Related Disruptions
High-temperature conditions across key manufacturing regions have created operational challenges:
- Production shift reductions: Many small and medium-sized enterprises implementing "semi-shutdown" states
- Regional hotspots: Manufacturers in Henan and Jiangsu particularly affected by extreme heat
- Power supply concerns: Grid stability issues creating uncertainty about consistent energy access
- Worker productivity impacts: Heat-related productivity declines affecting output volumes
How Are Different Aluminum Sectors Performing?
The aluminum processing industry shows significant divergence between sectors, with unique factors influencing each segment's performance.
Primary Aluminum Alloy: Slight Improvement Against the Trend
Primary aluminum alloy producers have shown a modest improvement in operating rates, increasing to 54.0%. This counter-trend performance is driven by:
- Liquid Aluminum Reallocation: Surplus liquid aluminum being redirected from billet production
- Production Cut Benefits: Intensifying production cuts in the aluminum billet market creating opportunity
- Structural Support: More stable domestic demand compared to other sectors
However, several factors are limiting the extent of this improvement:
- Rising aluminum prices suppressing downstream demand
- High-temperature holidays affecting production schedules
- US tariff impacts clouding export expectations
Aluminum Plate/Sheet and Strip: Continued Deterioration
The operating rate for aluminum plate/sheet and strip producers has fallen to 63.2%, representing the most significant decline (-0.6%) across aluminum sectors. This segment faces multiple challenges:
- Persistent Demand Weakness: Overall market demand remaining sluggish
- Price Pressure: High aluminum prices forcing downstream customers to remain cautious
- Inventory Concerns: Elevated finished product inventories limiting production needs
- Power Rationing Risk: Potential for high-temperature-related power restrictions
An industry source noted, "Although no actual feedback on power rationing has been received, the risk deals a heavy blow to manufacturers' confidence." This psychological impact compounds existing market weakness.
Aluminum Wire and Cable: Defensive Production Strategy
The aluminum wire and cable sector has seen its operating rate drop to 61.6%, with manufacturers adopting defensive positions:
- Slow Order Matching: New orders from the State Grid being released at a slower pace
- Capital Pressure Management: Enterprises reducing raw material and finished product inventories
- Production Shift Reductions: Small and medium-sized enterprises implementing semi-shutdown states
- Regional Impacts: Manufacturers in Henan and Jiangsu particularly affected
According to SMM research, "Attention needs to be paid to whether the matching status of power grid orders in August can reopen the industry's concentrated delivery cycle."
What's Happening in Specialized Aluminum Sectors?
Several specialized aluminum segments show distinctive trends that diverge from the broader market pattern.
Aluminum Extrusion: Sector-Specific Divergence
The aluminum extrusion industry maintained a steady operating rate of 49.5%, but with significant variation across end-use applications:
Automotive Extrusion
- Average new order situation with stable but unspectacular demand
- Just-in-time purchasing strategy with no raw material hoarding
- Stable operating levels compared to previous periods
PV Extrusion
- Declining operating rates among small and medium-sized enterprises
- Poor profitability driving production cuts in Anhui region
- Specialized production focus (brackets only) reported in Fujian
Architectural Extrusion
- Reliance on existing orders to maintain production
- Domestic real estate restrictions limiting new order generation
- East China manufacturers reporting particularly challenging conditions
Aluminum Foil: Processing Fee Pressures
The aluminum foil sector maintained an operating rate of 69.6%, the highest among aluminum sectors, but faces continuing challenges:
- Product-Specific Conditions:
- Packaging foil processing fees stabilizing around 5,800-6,000 yuan/mt
- Hydrophilic foil processing fees declining to 3,800-4,000 yuan/mt range
- Volume Discount Limitations: Difficulty sustaining volume discount strategies
- Seasonal Weakness: Traditional consumption off-season limiting recovery potential
SMM research indicates that "The processing fee for packaging foil temporarily halted its decline" while "The hydrophilic foil processing fee continued to fall," showing divergent trends within the segment.
Secondary Aluminum: Divergent Performance Patterns
The secondary aluminum sector maintained an overall operating rate of 53.6%, but with significant divergence between:
-
Large Producers: Maintaining stable production or slight increases
- Benefiting from stable order flow
- Advantage of delivery brand recognition
- Support from futures-cash arbitrage activity for ADC12
-
Small and Medium Producers: Facing significant production pressures
- Raw material procurement difficulties
- Tightening aluminum scrap circulation both domestically and internationally
- Weak demand performance during traditional off-season
Industry experts note a "battle for scrap" intensifying as raw material competition heats up between manufacturers. The iron ore price forecast offers insights into broader metal market trends that may affect aluminum pricing dynamics.
What's the Short-Term Outlook for Aluminum Processing?
Continued Downward Pressure Expected
Industry analysts project the operating rate of downstream aluminum enterprises declined will continue, with a forecasted 0.1 percentage points week-over-week decrease to 58.5% in the coming week. This forecast is based on:
- Persistent off-season demand weakness
- Continued high aluminum price environment
- Ongoing high-temperature weather impacts
- Raw material supply constraints in certain sectors
Sector-Specific Projections
- Primary Aluminum Alloy: Expected to maintain a weak but stable trend
- Aluminum Plate/Sheet/Strip: Further downside anticipated due to demand weakness and power rationing risks
- Aluminum Wire/Cable: Continued low-level operation with focus on State Grid order matching in August
- Aluminum Extrusion: Stable automotive sector offsetting weakness in PV and construction
- Aluminum Foil: Continued downward trend during traditional consumption off-season
- Secondary Aluminum: Weakening trend expected due to raw material shortages and demand weakness
SMM analysts note that "Multiple negative factors are likely to persist in the short term," limiting the potential for immediate recovery.
How Are Market Dynamics Affecting Processing Fees?
Processing Fee Compression
The aluminum processing industry is experiencing significant pressure on processing fees across multiple sectors:
- Packaging Foil: Processing fees stabilizing at 5,800-6,000 yuan/mt with limited upside potential
- Hydrophilic Foil: Processing fees declining to 3,700-4,000 yuan/mt range
- Primary Alloy: Margin compression from rising aluminum prices offsetting production benefits
SMM research indicates that "The 'volume discount' strategy was difficult to sustain" as manufacturers struggle to maintain profitability even at higher volumes. Current commodity trading insights reveal broader patterns affecting aluminum processors.
Competitive Landscape Shifts
The challenging environment is creating shifts in competitive positioning:
- Raw Material Competition: Fierce competition for aluminum scrap described as a "battle for scrap"
- Production Strategy Divergence: Large producers maintaining operations while smaller facilities implement cuts
- Market Share Dynamics: Potential consolidation as weaker players reduce production
Industry experts note that "Large factories, relying on stable orders and the advantage of delivery brands, maintained relatively stable production" while smaller producers face disproportionate challenges.
What Factors Could Change the Current Trajectory?
Potential Stabilizing Factors
Several developments could potentially stabilize or improve operating rates in the coming months:
- State Grid Order Acceleration: Improved matching speed of new orders from the State Grid
- Temperature Normalization: Reduction in high-temperature production disruptions
- Aluminum Price Stabilization: Moderation in aluminum prices could release pent-up demand
- Export Market Clarity: Resolution of tariff uncertainties could improve export expectations
Sector-Specific Watch Points
- Primary Aluminum Alloy: Continued liquid aluminum allocation patterns
- Aluminum Wire/Cable: August power grid order matching status
- Aluminum Extrusion: Progress of terminal order fulfillment and export project execution
- Secondary Aluminum: Raw material availability and scrap circulation improvements
SMM analysts recommend "tracking the progress of terminal order fulfillment and the execution of export projects" as key indicators of potential market recovery.
FAQ: Aluminum Processing Industry Outlook
What is causing the decline in aluminum processing operating rates?
The decline is primarily driven by a combination of traditional off-season demand weakness, high aluminum prices suppressing consumption, high-temperature weather disruptions, and raw material supply constraints in certain sectors.
Which aluminum processing sectors are performing relatively better?
Primary aluminum alloy has shown slight improvement against the trend (+0.2%), while aluminum foil maintains the highest operating rate at 69.6% despite facing challenges.
How are high temperatures affecting aluminum production?
High temperatures are causing semi-shutdowns among small and medium-sized enterprises, reducing production shifts, and creating risks of power rationing that could further impact production capacity, particularly in Henan and Jiangsu regions.
What is the outlook for aluminum processing fees?
Processing fees remain under pressure across most sectors, with packaging foil fees stabilizing around 5,800-6,000 yuan/mt and hydrophilic foil fees declining to the 3,700-4,000 yuan/mt range. The "volume discount" strategy is increasingly difficult to sustain.
When might aluminum processing operating rates begin to recover?
A potential recovery could begin after the traditional off-season ends in August-September, particularly if State Grid orders accelerate, temperatures normalize, and aluminum prices stabilize.
Disclaimer: This analysis is based on current market conditions and represents the view of SMM as of July 10, 2025. Market conditions may change rapidly, and readers should conduct their own due diligence before making business or investment decisions based on this information.
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