Aluminum extrusion industry operating rate continued to weaken, while aluminium billet conversion margins in south China rose

On the first day of July, due to the slightly better-than-expected destocking speed over the past half month, aluminum billet inventory were no longer at a four-year high for the same period. However, the pick-up from warehouses significantly declined, decreasing by 7,400 mt WoW to 38,600 mt. As of July 4, the social inventory of domestic aluminum billets was 139,700 mt, down 3,800 mt WoW and down 1,000 mt from July 1. The slowdown in destocking has also caused the current inventory to be 3,600 mt higher YoY. The recent continuous destocking was mostly due to the low arrivals in the domestic market.

Thanks to weak aluminum prices and destocking, aluminium billet conversion margins in south China have been rising over the past month. The conversion margins of φ120 billets in Foshan have risen to 410 yuan/mt, up 60 yuan/mt WoW, and rebounded 480 yuan/mt from the low point at the end of May. Why have aluminium billet conversion margins in south China risen during the off-season? SMM believes there are two main reasons: (1) The proportion of aluminum liquid has been adjusted domestically, increasing the ingot volume. Some billet factories in Guangxi, Guizhou, and Inner Mongolia reduced or halted production in May. Although they resumed production in June, the output was still lower than before; (2) The Guangdong-Shanghai price spread remained large, significantly reducing the volume of billets shipped from northern factories to south China, leading to a noticeable decrease in arrivals in south China. However, in July, with the rise in conversion margins, billet factories adjusted their production and shipment pace, pushing up arrivals in south China. The sustainability of the rise in conversion margins and destocking remains insufficient. SMM expects domestic aluminium billet inventory to fluctuate between 130,000-180,000 mt in July.