Driven by the reduction in overall domestic aluminum billet supply, the destocking in May maintained a good trend. But can this destocking continue into June? With the full production resumption in Guangxi at the beginning of June, the arrivals in South China soared by nearly 10,000 mt in the week, more than doubling WoW. Arrivals in Wuxi also increased, leading to a slight accumulation in both regions. As of June 6, the social inventory of aluminum billets in China was 166,400 mt, up 3,500 mt WoW and 28,000 mt YoY, still at a four-year high for the same period. At the beginning of June, the destocking of aluminum billets slowed down, with pick-up from warehouses also showed a significant decline. In the week, aluminum billet pick-up from warehouses decreased by 6,700 mt WoW to 45,200 mt, falling to a four-year low, which is clearly an unfavorable signal. As aluminum billet inventory has been declining for a long time, SMM believes that constrained by the expected increase in supply and weak downstream demand, destocking will be challenging, and the domestic inventory in June may hover around 150,000-200,000 mt.
In the week, aluminum prices hit a new high for the year. Downstream market remained sluggish, despite destocking. The good performance in aluminum billet pick-up from warehouses within the month was due to sales boost brought by price cuts. Due to sluggish demand from end-users, extrusion companies lowered their purchasing prices. On May 30, aluminum prices surged again to a new high for the year, and 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. SMM expects that in the short term, as aluminum prices adjust, conversion margins are likely to rebound. As of June 6, the conversion margins of φ120 billets in the three regions (Nanchang, Foshan, Wuxi) rebounded to -60, 120, and 180 yuan/mt, respectively, with a rebound of nearly 150 yuan/mt. However, during the off-season, conversion margins for aluminum billets are expected to remain weak.
In the week, the operating rate of leading domestic aluminium extrusion companies dropped by 1.0 percentage point from a week ago to 56.5%. Aluminium prices fluctuated at high levels, with bearish downstream sentiment and orders placed based on rigid demand. By segment, the construction aluminium extrusion market showed a transition to the off-season, with companies mainly relying on orders on hand and orders from old customers, while new orders were weak. Therefore, as orders on hand are digested, the operating rate of some companies has declined. The sentiment around recent favorable macro policies has slightly cooled, and downstream demand transmission still requires some time. In the industrial aluminium extrusion segment, PV module manufacturers placed orders based on rigid demand, allowing companies to maintain high operating rates. However, the decline in processing fees and delayed payment periods were quite common. Overall, end-user demand is gradually transitioning to the off-season, together with high aluminium prices, resulting in weak operating rates.
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