SMM Analysis: Jan Aluminum Billet Output Slumps, Feb Production to Hit 4-Year Low

SMM February 13:

In January, the operating performance of domestic primary aluminum billets weakened more than expected. According to SMM data, the operating rate for aluminum billets dropped significantly by 5.3 percentage points MoM to 50.3%, down 1.3 percentage points YoY. Aluminum billet production in January was only 1.357 million mt, a sharp decrease of 144,000 mt MoM, down 3.9%; it increased slightly by 12,000 mt YoY, up 0.9%. After the New Year's Day holiday, domestic aluminum prices surged continuously and hit a record high by the end of January, which to some extent diverged from the weak fundamentals. Against this backdrop, downstream companies showed no intention to chase higher prices for stockpiling before the Chinese New Year, with rigid demand relying solely on volume discounts, and restocking sentiment fell to a freezing point. Profile enterprises generally started holidays earlier, and aluminum billet enterprises bore the brunt of order reductions, leading to a "flash crash" in aluminum billet processing fees. The industry situation deteriorated rapidly, with processing fees in three regions trapped deep in negative territory and struggling to recover, while in-factory inventory at aluminum billet enterprises also climbed step by step. Under pressure from inventory and capital, aluminum billet supply in January shrank more than expected. Compared with the previous month, more enterprises underwent maintenance or proactively cut production by reducing liquid aluminum procurement, with production in Guangxi, Xinjiang, Inner Mongolia, Qinghai, Guizhou, and Henan provinces dropping more than 10% MoM.

Looking ahead to February, as the Chinese New Year holiday approaches, most enterprises that underwent maintenance or proactively cut production in January have not yet resumed operations. With more downstream enterprises entering the holiday period, lack of orders, high fluctuations in aluminum prices, and processing fees remaining below cost lines have further dampened billet plants' willingness to produce. In early February, the scale of production cuts and halts at aluminum billet enterprises is expected to continue expanding. In previous years, most primary aluminum billet enterprises maintained normal production during the Chinese New Year holiday, but this year several billet plants have chosen to suspend operations during the holiday. Taking into account the casting ingot plans of upstream aluminum enterprises, expectations for the domestic proportion of liquid aluminum, and the performance of social and in-factory aluminum billet inventories, SMM expects domestic aluminum billet production in February to fall below 1.13 million mt, with the operating rate projected to pull back to around 42.1%, hitting a nearly four-year low. (The February production data is only a forecast. Data source statement: Except for publicly available information, other data are processed by SMM based on public information, market communication, and SMM's internal database model, and are for reference only, not constituting decision-making advice.)