PMI of Chinese Aluminum Downstream Processing Sectors Dropped Below 50% in October

According to SMM data, in October 2023, the Purchasing Managers' Index (PMI) for China's aluminum processing industry declined by 9.1 % MoM to 47.0%.

Looking at the detailed indices for September 2023, production, demand, and price indices for the aluminum downstream industry in China all showed a MoM decline. The new order index experienced a significant drop, down 26.9%. According to a survey by SMM, aside from aluminum wire and cable, new orders for aluminum plate/sheet and strip, foils, construction extrusion, industrial extrusion, primary aluminum alloys, and secondary aluminum alloy sectors all significantly decreased. In September, only a few companies showed slight improvements, but they expressed difficulties in finding new growth, with a decrease in existing orders leading to a drop in raw material procurement and inventory indices.

Furthermore, finished goods inventory index rose 15.9 % MoM, primarily due to weak end-user demand. The situation for downstream pickup remained largely unchanged from September. However, with the weather turning cold in the northern regions, there was a slight extension in the pickup and delivery cycle downstream.

Looking at the sectors, the PMI for aluminum plate/sheet and strip, aluminum foil, industrial extrusion, primary aluminum alloy, and secondary aluminum alloy all fell below 50% in October. Among them, the drop in aluminum plate/sheet and strip, aluminum foil, primary aluminum alloy, and secondary aluminum alloy exceeded 10%. The PMI for aluminum wire and cable sector saw a slight change but remained above 50%. The PMI for aluminum extrusions used in construction rose above 50% for the first time since the minor peak at the beginning of the year, mainly due to a rebound in orders for commercial public buildings in areas such as East China. Among them, several large aluminum extrusion companies in Guangdong saw an increase in their operating rates and order volume. However, overall, the oversupply of construction extrusions was severe, and there was a lack of sustainability and prevalence in subsequent orders. Industrial extrusions were affected by the reduction in production downstream in the photovoltaic sector, with related companies cutting back production in October, leading to a decline in the PMI index for industrial extrusions.

Aluminum plate/sheet and strip: The PMI for the aluminum plate/sheet and strip industry was 45.1% in October, down 15.6 % MoM. This year, the demand in the aluminum plate/sheet and strip market has been weak, with many small and medium-sized enterprises operating at a low rate. As a result, some companies shut down for the National Day holiday, resulting in lower monthly production in October than in September. The end of October marks the transition from peak to off-peak season, with particularly low demand for some companies' products. The early arrival of the off-peak season led to a MoM decline in their end-of-month orders. Ultimately, the overall performance of the aluminum plate/sheet and strip industry in October was below that of September, with its PMI below 50%. The demand for the aluminum plate/sheet and strip industry in November is expected to be lower than in October, and it is unlikely that the industry's PMI will exceed 50%.

Aluminum foil: The PMI for the aluminum foil industry in October was 39.2%, down 22.1% MoM. The first half of October was still the traditional peak season, with relatively strong demand in the aluminum foil market, and most companies' order volumes and operating rates did not vary significantly from September. However, the latter half of October approached the traditional off-peak season, some companies saw a decrease in new orders, resulting in a subsequent decrease in the volume of orders on hand and a slowdown in production pace. This ultimately led to a MoM decrease in the production and sales volumes of some sample companies in October, with the PMI below 50%. As November enters the off-peak season, and there are currently no expectations of improvement in both domestic and foreign markets. It is expected that the production and sales volumes of aluminum foil companies will further decline, and the industry's PMI is expected to be below 50%.

Construction extrusion: The comprehensive PMI index for the construction extrusion industry in October was 50.20%, marking the first rise above 50% since March. A closer look at the sub-indices reveals that the production index was recorded at 54.92%, and the new order index at 46.82%. This was largely due to some construction extrusion companies in East and South China receiving orders for urban renewal projects and commercial buildings in surrounding cities such as Nanjing and Shanghai, which bolstered order volumes and operational rates for these companies. Whether this trend can continue will require further tracking. The finished goods inventory index was recorded at 50%, primarily because processing companies have formed a mode of dispatching goods immediately upon production completion in a bid to actively recover funds. As a result, there was little change in the status of finished goods inventory in warehouses compared to September. Impacted by overseas recession and negative policy intensification, new export orders for the month remained weak, with its index staying below 50%, recorded at 49.52%. Due to a slight recovery in end-user demand, driving production improvement, the volume of raw material purchases increased to 51.66%. However, due to high fluctuations in aluminum prices and companies' efforts to ensure cash flow, only safety production inventories were prepared, resulting in a raw materials inventory index below 50%, recorded at 48.42%. With the weather getting colder and demand from northern markets gradually decreasing, it is expected that the overall situation in the construction extrusion industry will remain lackluster in November, with the industry PMI likely falling below 50%.

Industrial extrusion: The overall PMI index for the industrial aluminum extrusion industry in October stood at 49.04%. Looking at the sub-indices, the production index was recorded at 48.36% and the new order index at 47.60%. This was mainly due to a decline in downstream demand in the photovoltaic sector, which led to a decrease in order volumes and operational rates, not only for second and third-tier manufacturers but also for leading production companies. As a result of the decline in order volumes, the raw material purchase volume index for processing companies also dropped, reaching 45.60%. In addition, with recent high aluminum prices, most companies' raw material inventories mainly adopted an on-demand purchasing strategy, maintaining only safety production inventories, resulting in little change. Furthermore, due to overseas economic recession, there was no significant change in new export orders for industrial aluminum extrusion MoM, standing at 50%. Overall, due to the weakening of downstream demand, the off-season for industrial aluminum extrusion may arrive early, and it is expected that the industry's PMI may continue to decline in November.

Aluminum wire and cable: In October, the domestic aluminum wire and cable industry's PMI index dropped by 2.1 % MoM to 54.7%. Domestic aluminum wire and cable companies' operating rates were generally stable and improving, with downstream manufacturers actively picking up goods, and the production index reached 57.7%. With the continuous release of new orders and an increased willingness to pick up terminal orders, the order index for aluminum wire and cable in October rose by 6.2 % MoM to 60.2%. However, the increase in new orders mainly focused on leading companies, with a downward trend in new orders for small and medium-sized enterprises. Due to the increase in raw material inventory caused by stockpiling for the double festival holiday in September, and the high aluminum prices in October, companies' willingness to stock up was low, and the industry's raw material inventory overall showed a downward trend, with the raw material purchase price index declining by 3.5% MoM to 48.8%. Entering November, power grid construction in areas such as Shandong and Jiangsu was unaffected, the industry had a large delivery volume, and companies' finished goods inventory levels were low. Companies mostly produced according to orders, and the industry's operating rates were generally stable and improving. It is anticipated that the PMI of the aluminum wire and cable industry will still be above 50% in November.

Primary aluminum alloy: The PMI for the sector dipped 17.6 percentage points MoM to 43.5% in October. October is traditionally the peak season for the primary aluminum alloy market. Alloy companies generally maintained normal production during the National Day holiday. However, in late October, some companies said that the off-season seemed to have arrived early, and their order volumes began to weaken. By the end of the month, the number of new orders and orders on hand for most companies were lower than the levels at the end of September. Since November is the traditional off-season, companies generally believe that it is almost impossible for production and sales to be higher than in October. Consequently, the PMI is expected to remain below 50%.

Secondary aluminum alloy: The PMI for the sector sank 11 percentage points MoM to 46.1% in October. Demand barely improved from September, with new orders declining. On the supply side, operating rates of large alloy plants were stable compared with September thanks to relatively full orders and normal production during the National Day holiday, while small and medium-sized ones, plagued by poor demand and cost pressure, mostly lowered their operating rates. Aluminum prices weakened in October, but aluminum scrap prices fell less sharply due to tight supply. High raw material prices drove alloy plants to reduce raw material inventory levels. With the off-season looming, the PMI for the secondary aluminum alloy industry in November is expected to remain below 50%.

November is about to enter the off-season. Currently, the domestic and export markets have shown no signs of improvement. Except for aluminum cables, other aluminum processing sectors are relatively pessimistic about production and sales in November. Aluminum prices fluctuated around 19,000 yuan/mt in October, still at a high level. In view of weak downstream demand, it is expected that the PMI of the domestic aluminum processing sectors in November may still be below 50%.