As of Q3 2026, according to Mysteel data, China's effective domestic aluminum bar production capacity reached 31.68 million tonnes during the quarter, with average capacity utilization at 57.39%, up 0.46 percentage points from Q2.
Over January–September 2026, total domestic aluminum bar output stood at 13 million tonnes, down 2.16% year-on-year. Output in Q3 2026 remained elevated overall, with both July and August each exceeding 1.5 million tonnes, while September saw a decline but still came in close to that level.
Although total output for the first three quarters of 2026 declined YoY, on a Q3 standalone basis the gap versus the same period in 2025 was less than 20,000 tonnes, and output was actually over 100,000 tonnes higher than in Q3 2024. Notably, both July and August posted YoY increases in monthly production.
During July and August, the traditional consumption off-season compounded by high temperatures, demand continued to weaken. However, the supply side showed no clear signs of contraction. While periodic production cuts and suspensions occurred, capacity restarts and new restarts ran in parallel. Furthermore, molten aluminum off-take under long-term contracts continued to constrain the operational flexibility of many bar producers reliant on externally sourced raw materials.
In September, the onset of the traditional peak season failed to deliver the anticipated demand recovery. Intensifying processing fee competition forced mills to adjust their operating pace, with planned maintenance and equipment servicing reducing output efficiency. Meanwhile, mounting pressure from insufficient orders, high scrap prices, and tight scrap availability prompted some mills to weigh production losses against long-term contract penalty when deciding on short-term operating loads.
At the start of the quarter, falling aluminum prices and a notable spike in processing fees prompted producers to accelerate shipments, seeking to cash out at favorable margins. This drove a sustained drawdown in ex-works inventories. However, from late July onward, inventories reversed course and began climbing. By the end of Q3, according to Mysteel, finished bar inventories stood at 126,100 tonnes, up by over 30,000 tonnes from the beginning of the quarter.
The inventory build was driven by several factors. On the demand side, sluggish spot market conversion during the off-season, weak orders at downstream extruders translating into slower bar procurement, combined with high summer temperatures that limited workshop operations and further dampened offtake appetite. On the supply side, output remained robust: July and August each exceeded 1.5 million tonnes monthly, with YoY increases. Additionally, logistics bottlenecks played a role--rising oil prices and freight rates, tight truck availability, priority given to agricultural produce transport, and holiday-related disruptions all contributed to cargo stuck at mills.
Traders' inventories of aluminum bar also trended higher over Q3. According to Mysteel, by quarter-end social inventories reached 159,500 tonnes, up by over 20,000 tonnes from the start of the quarter.
The share of direct truck-to-plant deliveries has risen year by year, particularly driven by the growing share of bar output from Southwest China. However, against a backdrop of oversupply, some in-transit cargoes failed to find buyers and were diverted into warehouses. In Q3 2026, as demand contracted significantly and destocking slowed, such diversions increased. At the same time, fixed warehouse inflows also faced sluggish outflows due to weak demand, driving a steady rise in traders' inventories through the quarter.
Following the National Day holiday, previously curtailed bar producers have gradually resumed operations, alongside the ramp-up of new capacity. Weekly bar output has recovered from below 340,000 tonnes/week pre-holiday to over 350,000 tonnes/week currently. On the inventory front, both traders' and ex-works stocks have continued to draw down post-holiday. Falling aluminum prices have sparked a modest pickup in spot market inquiry activity, but upside momentum in processing fees remains elusive. Holders, focused on cashing out, have engaged in competitive pricing, with downstream buyers picking at lower offers. The inventory draw has thus been driven more by price concessions to move volume than by any genuine demand recovery.
From Q4 2026 onward, bar output is expected to remain at high levels, with full-year 2026 production projected at over 17.5 million tonnes, slightly below 2025's total. Looking ahead, the pace of inventory destocking, processing fee trajectories, and spot market dynamics will hinge closely on aluminum price fluctuations and the trajectory of actual demand.
Written by Regina WANG
wangjiaqie@mysteel.com
