Aluminum billet market remained sluggish, despite destocking, with conversion margins falling to near three-year lows

The reduction in domestic aluminum billets supply in May mainly drove the destocking in the last week of May. According to SMM statistics, as of May 27, domestic aluminum billet social inventory was 172,100 mt, down 9,000 mt WoW. By region, South China led with a destocking of 11,900 mt, followed by Nanchang and Wuxi. Disruptions in the supply in Guangxi are still ongoing. In the week, billet factories in Tianyang resumed part of their operating capacity, but due to high aluminum prices, local production is still far from full recovery. Additionally, with the current low in-plant inventory, aluminum billet inflows in South China decreased by 1,500 mt to 9,600 mt in the first four days of the week, while pick-up from warehouses decreased by 1,800 mt to 20,000 mt due to high aluminum prices. In the week, pick-up from warehouses were 51,900 mt, down 500 mt WoW. Although aluminum billets pick-up from warehouses may decline, SMM believes that domestic inventory will continue to show a slight decrease, benefiting from the reduction in supply and relatively stable pick-up. Domestic aluminum billet inventory is expected to drop to around 150,000 mt.

However, as aluminum prices hit a new high for the year, downstream market was still sluggish, despite destocking. The aluminum billets inventory declined mainly as producers sold at close to costs in order to promote sales. Sluggish demand from end-users forced aluminum extrusion companies to lower their purchasing prices. Due to the sharp rise in aluminum prices on May 30, which set a new high for the year, the conversion margins in East China fell to a nearly three-year low. During the week, the conversion margins of φ120 billets in three regions (Nanchang, Foshan, Wuxi) dropped to -200, -70, and -30 yuan/mt, respectively, with Foshan being just a step away from a new low. SMM expects that as aluminum prices adjust, the conversion margins are likely to bottom out.

In the week, the operating rate of leading domestic aluminum extrusion enterprises showed a downward trend again, down by 1.00 percentage point from a week ago to 57.5%. Some enterprises are operating normally, but new orders plummeted. After spot aluminum prices broke through 21,000 yuan/mt, orders have also been temporarily postponed, and enterprises expressed concerns about subsequent demand. By sector, the construction extrusion market remained sluggish, with enterprises mainly relying on orders on hand and orders from old customers, while new orders are weak. In the industrial extrusion sector, PV module manufacturers are constrained by high aluminum prices, leading to significant market fluctuations, and order placements are delayed. The extended payment also exacerbated the sluggish market. Overall, end-user demand is gradually transitioning to the off-season, together with high aluminum prices, resulting in a weak operating rate.