On May 27, 2024, SMM reported that the social inventory of aluminum ingots was 781,000 mt, (the amount for sale stood at 655,000 mt), up 14,000 mt from a week ago and 160,000 mt higher YoY. In terms of cargo pick-up, 102,300 mt of aluminum ingots were picked up from warehouses, down 12,500 mt WoW, marking a new low since the Labour Day holidays and remaining at a five-year low for the same period. For the continuous accumulation of domestic aluminum ingots for nearly half a month, with supply continuously increasing but cargo pick-up remaining weak, the inventory pressure is significant. SMM's analysis is as follows:
Supply—Recently, the pressure from arrivals has continued to increase, and the inflow of Russian aluminium may also rise. Over the past week, the domestic aluminium operating capacity has mainly been on the rise, with most enterprises in Yunnan achieving an operating rate of over 85%. The third phase of the Huayun project in Inner Mongolia was put into operation on May 18, but it will still take some time for the enterprise to reach full production. The contribution to May's output is relatively small, and the domestic aluminium operating capacity may reach around 42.9 million mt by the end of May. The resumption progress in Yunnan is good, and the resumption may be completed in June, gradually highlighting the pressure on the supply side. Due to a slight increase in ingot production in May, the overall domestic aluminum ingot arrivals are expected to increase in late May. Additionally, two special trains of Russian aluminium (each train approximately 2,700 mt) arrived in the Gongyi area over the weekend, and the inflow of Russian aluminium into major consumption areas has increased compared to April. Affected by the resumption progress in Yunnan, arrivals in the South China region remain high. However, due to the resumption of some billets factories in Tianyang, Guangxi last week, the aluminum ingot arrivals in the South China region over the weekend were 9,300 mt, down 1,500 mt WoW. Arrivals in the Wuxi area over the weekend were also high, remaining basically stable WoW.
(2) Demand—During the transition between peak and off-peak seasons, high aluminum prices continued to inhibit cargo pick-up performance. In the past week, the operating rate of leading domestic downstream aluminum processing enterprises decreased by 0.3 percentage points from a week ago to 64.6%, up 0.5 percentage points YoY. By segment, the operating rates for aluminium plate/sheet and strip and aluminium extrusion slightly declined this week. The plate/sheet and strip enterprises mainly reduced production due to a continuous decline in new orders, while extrusion enterprises were constrained by high aluminum prices, leading to downstream sentiment being inhibited. Together with a decrease in early-month order stock at the end of month, some enterprises saw a decline in operating rates. Last week, aluminum prices hit a record high for the year and were highly volatile, inhibiting downstream procurement enthusiasm, resulting in a decrease in orders and operating rates for aluminum processing enterprises. Additionally, during the transition between peak and off-peak seasons, many segment enterprises saw a slight decline in orders, and the overall operating rate is expected to weaken steadily. As a result, the amount of aluminum ingots picked-up from major consumption areas decreased last week, with Gongyi's cargo pick-up down by over 10,000 mt WoW.
In terms of aluminum billet inventory, it is still supported by processing fees "trading price for volume," the rigid demand for downstream aluminium extrusion, and the reduction in aluminum billet supply. By the end of May, the destocking of domestic aluminum billets continued and performed better than previously expected. Although it remains at a high level for the same period in nearly four years, the gap with the same period last year has narrowed to 37,000 mt. According to an SMM survey, the disruption in the aluminum billet supply in Guangxi continues. Last week, billet factories in Tianyang resumed part of their operating capacity, but due to high aluminum prices, the local aluminum billet production is still far from full recovery in the short term. Additionally, with the current low inventory, the aluminum billet arrivals in South China over the weekend decreased by 2,700 mt WoW to 4,200 mt, while cargo pick-up remained stable at around 10,000 mt. According to SMM statistics, as of May 27, the social inventory of domestic aluminum billets was 172,100 mt, a decrease of 9,000 mt compared to last Thursday. Last week, the aluminum billets picked-up from warehouses were 51,900 mt, down 500 mt WoW. In May, the pick-up of domestic aluminum billets remained stable above 50,000 mt, showing a strong performance.
On the demand side, the operating rate of leading domestic aluminium extrusion enterprises fell by 1.50 percentage points from a week ago to 58.5% this week. This was mainly due to downstream sentiment being inhibited by aluminum prices breaking through 21,000, together with the approaching end of the month, which led to a decrease in early-month order volumes and a decline in the operating rate of some enterprises. By segment, there were no significant market fluctuations in construction extrusions this week. According to the SMM survey, orders on hand for leading domestic construction extrusion enterprises have been better than expected since the beginning of 2024, but still show a downward trend compared to previous years. Some enterprises indicated that the trillion-yuan national bonds and ultra-long-term bonds might have a positive effect on the collection of receivables. In the industrial extrusions segment, leading photovoltaic extrusion enterprises have sufficient orders on hand, but low processing fees continuously squeezed profit margins. Overall, the inhibiting effect of high aluminum prices on downstream demand remains evident, with purchases only driven by rigid demand.
Regarding the subsequent trajectory of domestic aluminum ingot and aluminum billet inventories: Domestic aluminum ingot inventory has been accumulating for nearly half a month, with supply continuously increasing but cargo pick-up remaining weak. The destocking faces significant pressure, and the current performance of domestic aluminum ingot inventory can hardly support the fundamentals of aluminum. Additionally, there is an expectation of increased arrivals in the future. It is anticipated that in the short term, domestic aluminum ingot inventory will struggle to resume a normal destocking pace, fluctuating around the 750,000-800,000 mt. Benefiting from reduced supply and stable cargo pick-up, domestic aluminum billet inventory is expected to see a slight decline, with the inventory likely to decrease to around 150,000 mt.
