China's aluminium rod processing fees staged a stair-step rally in the first half of 2026, peaking near record highs in June as tight spot supply collided with a surge in export orders, but the momentum faltered in early July as softening LME prices shut the arbitrage window, pointing to a weaker start for the second half.
Processing fee trends
In H1 2026, domestic aluminum rod processing fees exhibited bottom oscillation followed by a stepwise ascent. Overall, the processing fee was significantly higher than the same period last year. However, the price trajectory diverged from 2025, when peaks occurred during the April-May consumption peak season. This year, fees began a stair-step climb in early May, culminating at the year's high point by the end of June.
At the start of the year, fees bottomed out amid weak supply and demand. The traditional off-season, coupled with high aluminum prices, prompted widespread shutdowns at downstream mills, leading to a sharp demand contraction. To recoup capital, the sellers engaged in distressed selling at lower prices. Following the Chinese New Year, fees saw a recovery driven by a modest demand revival. In Henan, tight supply-demand dynamics briefly pushed fees to Yuan 400-500/tonne. However, elevated aluminum prices subsequently suppressed new orders, triggering a secondary dip in fees.
Post-Q2, spot market liquidity contracted severely due to a surge in export orders and long-term contract deliveries. Spot shortages became acute, driving fees sharply higher. In some regions, premiums of approximately Yuan 200/tonne were added to nominal quotes, while persistent supply tightness led to high quoted prices unsupported by transaction volume. Coupled with a significant retreat in aluminum prices, fees reached their annual peak via a stepwise rally by late June, with fees in some consumption hubs frequently exceeding Yuan 1,000/tonne.
Nevertheless, as the LME aluminum price weakened in late June, export profits turned negative, cooling overseas orders. With domestic demand failing to pick up, fees plummeted in early July, entering a downtrend.
Inventory Trends
Throughout H1 2026, overall inventory levels were markedly lower than in 2025, remaining at low levels for most of the period. The post-Chinese New Year inventory peak in 2025 approached 100,000 tonnes, whereas the 2026 peak stood at only around 38,000 tonnes, near 50% year-on-year plunge. This reflects downstream enterprises adopting a more cautious pre-holiday stocking strategy, avoiding significant capital lock-up. It also indicates that upstream producers maintained conservative production schedules during the holiday, effectively curbing inventory accumulation at the source. Entering Q2, inventory saw two brief, pulse-like rebounds during the April demand validation period and the May export order rush. However, the destocking pace was decisive, accelerating to historic lows by the end of June.
Supply analysis
In recent years, domestic aluminum rod capacity has maintained a steady expansion, primarily concentrated in core production regions such as Shandong, Inner Mongolia, Henan, Shanxi, and Guangxi. According to Mysteel's sampled producers, as of the end of June 2026, total domestic aluminum rod capacity reached approximately 8.89 million tonnes, representing an increase of 560,000 tonnes compared to 2025. New capacity commissioned during the year was mainly concentrated in regions such as Inner Mongolia, Guangxi, and Sichuan.
According to Mysteel's survey, national aluminum rod output in June 2026 was 466,500 tonnes, up 15.10% year-on-year and 4.34% month-on-month. Cumulative output for January-June 2026 reached 2.38 million tonnes, an increase of 4.53% over the same period last year.
In H1 2026, overall aluminum rod output demonstrated a pattern of moderate expansion, achieving positive YoY growth at all stages except during the Chinese New Year holiday. During the holiday period, squeezed by persistently high aluminum prices and weakening processing fees, profit margins for aluminum rod enterprises narrowed. Some small and medium-sized enterprises halted production and commenced holidays earlier than usual, with extended shutdown durations leading to a YoY decline in output for that specific stage. However, production quickly rebounded post-holiday alongside recovering downstream demand. Particularly in Q2, driven strongly by incremental export orders, capacity was further unlocked, propelling steady overall output growth.
In H1 2026, the overall operating rate of the aluminum rod market maintained an upward trajectory following the Chinese New Year. According to Mysteel data, the average operating rate for January-June 2026 was 55.33%. Excluding production cuts during the holiday period, rates consistently exceeded 50% in other periods, with a notable recovery in overall utilization. Some enterprises operated at full capacity, especially in June, where the operating rate saw a significant YoY increase driven by export orders.
Demand Analysis
In H1 2026, domestic aluminum rod demand was anchored in power cables, new energy, energy storage, and exports. Grid construction remained the cornerstone of consumption. The State Grid's fixed asset investment for the 15th Five-Year Plan period totals approximately Yuan 4 trillion (averaging roughly Yuan 800 billion annually), while the China Southern Power Grid allocated Yuan 180 billion for fixed asset investment in 2026. The increased spending from both grid giants, coupled with progress in UHV transmission and distribution network projects and the steady fulfillment of tender orders, effectively underpinned domestic demand. New energy and export markets acted as incremental demand drivers, filling traditional consumption gaps during the first half. Meanwhile, the automotive lightweighting trend and accelerated UHV grid rollout spurred sustained offtake for automotive wiring harnesses and power cable rods.
Additionally, the export arbitrage window opened periodically in Q2. Overseas demand for grid infrastructure and new energy released firmly as utility projects entered a concentrated construction phase between March and May. This coincided with a widening internal-external price spread. Furthermore, the 13% export tax rebate amplified profit margins, prompting traders to accelerate shipments. Consequently, monthly export volumes surged month-on-month. This effectively offset the pressure from softer domestic consumption.
According to the General Administration of Customs of People's Republic of China, China exported 63,900 tonnes of aluminum wire and cable in May 2026, up 131.4% MoM and 121.6% YoY. Total exports for January-May 2026 reached 171,100 tonnes, a 53.14% YoY increase.
Outlook for H2 2026
Based on H1 trends and early-July movements, market focus is expected to revert to fundamentals in H2, with processing fees likely following a "down-then-up" trajectory.
Early Q3 may face periodic pressure. The combination of the traditional July-August off-season and the conclusion of the prior export order rush, leaving a short-term lack of fresh demand catalysts, will likely keep fees in a weak, oscillating pattern.
Entering Q4, however, seasonal pressures are expected to wane. Sustained releases of long-cycle orders from the State Grid and other major players should provide strong support. Downstream cable producers are anticipated to initiate concentrated year-end stockpiling and replenishment. Against this backdrop of improving marginal demand, processing fees are expected to stabilize at the bottom and stage a corrective rebound.
Conclusion
The H1 2026 aluminium rod market was defined by a structural shift in supply-demand dynamics, as historically low inventories and a robust export arbitrage window drove processing fees to year-to-date highs despite macroeconomic headwinds. While the late-June collapse in export margins has triggered a necessary correction entering July, the market's foundation remains intact. Looking ahead, any near-term weakness during the traditional summer lull is likely to be temporary. The market is poised for a potential recovery in Q4, underpinned by the inelastic demand from State Grid tenders and mandatory year-end inventory replenishment.
Written by Regina WANG
wangjiaqie@mysteel.com
