The operating rate of secondary aluminum alloy plants may be under pressure due to insufficient demand and high aluminum prices

The operating rate of secondary aluminium alloy industry stood at 56.96% in March, up 22.93% MoM but down 2.24% YoY. The secondary aluminium alloy plants and their downstream enterprises that had stopped production due to CNY holiday resumed production in March, and the number of working days increased, boosting output and operating rate. In April, there is no obvious improvement on the demand. As aluminum prices exceeded 20,000 yuan/mt, downstream purchases were more cautious in placing orders. It is expected that the operating rate will fall slightly in April.

According to customs data, China imported 193,500 mt of unwrought aluminum alloy in Jan-Feb, up 14.6% YoY, but the import volume in Jan-Feb decreased compared with the end of 2023. This was mainly as domestic aluminum prices continued to fall after November, but overseas quotations continued to rise, and import profits turned into losses. It was also curbed by long CNY holiday and sluggish stocking sentiment among downstream die-casting plants. Driven by expectations of rising prices and orders after the holidays, goods that were ordered after January arrived at ports one after another, and imported aluminum alloy ingots in March are expected to rebound to above 100,000 mt. Due to strong overseas demand, ADC12 secondary aluminum alloy was offered above $2,400/mt in Malaysia and South Korea, or even above $2,450/mt. The immediate loss of imports was in the range of 100-300 yuan/mt. The import window closed, while export volume may increase.

Aluminum prices picked up in March. The prices of ADC12 alloy rose rapidly along with aluminum price in the first half of the month, and the premiums of ADC12 cash price over A00 aluminum widened. However, the increase in ADC12 prices slowed down in the second half of the month, narrowing the premium of ADC12 over A00 significantly and turning into a discount in early April. As of Apr 10, large producers raised their offers by 400 yuan/mt MoM to 20,300-20,600 yuan/mt, while small and medium-sized ones hiked their quotes by 400 yuan/mt to 20,000-20,400 yuan/mt. Due to the tight circulation of aluminum scrap, the prices were relatively high at the beginning of the month. The increase in the cost of aluminum scrap also pushed up the price of ADC12 alloy. It was until the middle of the month that the tight supply alleviated. Silicon prices continued to fall in March. The price of above-standard #553 silicon metal fell by 1,100 yuan/mt MoM to 13,700 yuan/mt. The price gap between aluminum and silicon widened by nearly 6,000 yuan/mt, and the cost of silicon continued to decline. In general, the weighted average cost of ADC12 industry in March rose by 1.4% MoM and the profit was 100-200 yuan/mt. Consumption of automobile industry gradually recovered, boosting the orders. According to data from the China Association of Automobile Manufacturers, China’s automobile production and sales were 2.687 million units and 2.694 million units respectively in March, up 78.4% and 70.2% MoM, and up 4% and 9.9% YoY, mainly due to stimulus policies. However, the overall demand was worse than expected, and due to rising aluminum prices in March, the downstream enterprises were on the sidelines. The market was pessimistic over orders in April, and demand was expected to decline slightly MoM.

Overall, the price of ADC12 in March went up due to rising costs, but due to unsatisfactory demand, the upward space was limited. If stimulus policies are gradually implemented, automobiles consumption will be further released, driving up demand for the industry.