Chinese Aluminium Downstream Processing Sectors' PMI Was In Expansion Territory In September, With Break-Down By Sector

SHANGHAI, Oct 10 (SMM) – In September 2023, China's aluminium processing industry's composite PMI rose by 4.5% to 56.1%, marking the fourth consecutive month above the threshold of expansion, according to data from SMM. Key indicators such as production, demand, and price indices for aluminium's downstream showed a monthly rise. The new order index saw a significant 10.4% MoM increase, primarily due to a positive trend in segments like aluminium plate/sheet and strip, foil, and primary alloy. Companies had about a month's worth of orders, and construction extrusion companies noted a rise in order volumes. Stockpiling before the Mid-Autumn Festival and National Day led to an increase in raw material inventory. Companies prioritized digesting finished goods inventory to speed up capital turnover, aligning production with downstream demand. All segments, except construction aluminium extrusion, stayed above the expansion threshold. The industrial extrusion segment saw a slight monthly PMI decrease due to some photovoltaic extrusion decrease in order volumes and operating rates, but remained in the expansion zone. The construction aluminium extrusion segment's PMI fell below 50% due to reduced end-user demand, primarily from the real estate sector.

Aluminium plate/sheet and strip：In September, the aluminium plate/sheet and strip industry's PMI reached 60.7%, up 7.8% MoM, due to a seasonal warming trend and increased new and backlogged orders. Despite a late-September eight-day holiday, most large companies had a month's worth of orders, leading to a busy production schedule and normal operations. Some companies saw an increase in raw material inventory, while pre-holiday stockpiling by downstream customers resulted in a drop in finished goods inventory. As we move into October, some insiders believe favorable policies could boost production and sales, with expectations that the PMI will stay above the expansion threshold.

Aluminium foil：In September, the PMI for the aluminium foil industry reached 61.3%, up 8.0% MoM. This rise was due to downstream customers stocking up for holidays like New Year's Day and Christmas, boosting order volumes and increasing some businesses' operation rates. The traditional peak season in September and October improved packaging foil demand, and the advancement of new energy vehicles continued to drive the demand for battery foil and brazing foil. The aluminium foil industry's PMI is expected to stay above the expansion threshold in October.

Construction aluminium extrusion： In September, the construction extrusion industry's PMI was 48.95%, staying below the expansion threshold. The production index was 44.16%, and the new orders index was 49.68%, both below the threshold, reflecting the industry's overall sluggishness. Despite good orders for commercial construction extrusions for some leading companies in September and October, overall growth was below expectations due to long settlement times from real estate downstream and poor overall performance. The finished goods inventory index rose to 51.79% due to weak downstream demand. Real estate entities slowed down their pick-up speed due to fund shortages, but finished products inventory decreased as companies prioritized inventory digestion. Overseas recession kept the new export orders index below the threshold at 49.34%. As companies focused on digesting finished goods inventory, purchasing volume and raw material inventory remained flat, with indices at 44.34% and 47.42%, respectively. In October, the industry is expected to remain in its traditional off-season, with the PMI likely staying below the expansion threshold.

Industrial aluminium extrusion：In September, the overall PMI for the industrial aluminium extrusion industry stood at 52.00%, staying above the expansion threshold. The production index was 58.53%, also above the threshold, but the new order index fell to 49.6%. This was primarily due to decreased downstream demand in sectors like photovoltaics and new energy vehicle extrusions, reducing order volumes for some second and third-tier manufacturers while stabilizing orders for leading manufacturers. Industrial extrusion production continued to remain above the threshold, with raw material purchasing volume and inventory index relatively stable at 57.8% and 50% respectively. High aluminium prices led most companies to adopt an on-demand purchasing approach for raw material inventory, and most extrusion factories did not stock up during the National Day holiday. The overseas recession kept the new export orders index at 49.21%. In October, the PMI for the industrial extrusion industry is expected to remain stable.

Aluminium wire and cable：In September 2023, the PMI for China's aluminium wire and cable industry rose to 61.9%, up 4.6% MoM. Improved operating rates led to increased company output, with the production index reaching 69.3%, up 14% MoM. High aluminium prices slowed new order growth, with the new order index falling to 53.9%, down 1.7% MoM. Some companies saw a slight increase in export orders, raising the new export order index to 54.9%, up 4.9% MoM. High domestic aluminium prices led companies to stockpile raw materials, causing a general increase in industry raw material inventories, with the raw material purchase price index rising to 52.3%, up 1.6% MoM. As grid construction remains in its peak season in October, and with stable and improving industry operating rates, the PMI for the aluminium wire and cable industry is expected to stay above the expansion threshold.

Primary aluminium alloy：In September, the PMI for the primary aluminium alloy industry reached 61%, up 4.9% MoM. With the arrival of the peak season, many plants reported a notable growth in their new orders. Some plants ramped up production after completing technical upgrades. Despite the weeklong National Day holiday, the production of most plants would not be disrupted. Some believe that demand could pick up further. Consequently, the PMI for the primary aluminium alloy industry is expected to stay above the expansion threshold in October.

Secondary aluminium alloy：In September, the PMI for the secondary aluminium industry reached 57.2%, up 5.6% MoM, staying above the expansion threshold. However, September did not meet expected demand, and secondary aluminium factories only experienced a slow recovery. High aluminium prices, exceeding 19,000 yuan/mt, led downstream enterprises to be cautious, limiting new orders and falling short of expected growth in operating rates. Before the Mid-Autumn and National Day holidays, secondary aluminium factories had slightly increased their raw material inventory due to stockpiling needs. Despite major secondary aluminium factories not taking a break during the holidays, the production pace slowed down, and most other companies took 2 to 4 days off. Due to the holiday impact and limited demand recovery, the PMI for the secondary aluminium industry is expected to fall below the expansion threshold in October.

Summary：Entering October, China's downstream industries are expected to operate stably and show improvement. In the aluminium plate/sheet and strip sector, insiders anticipate that previous favorable policies could positively impact the aluminium processing industry, potentially boosting production and sales volumes. The demand for new energy vehicles might drive growth in related products such as battery foil, brazing foil, and automotive extrusions. The growth trend of the photovoltaic extrusion industry may slow down, but due to policy influences, some regional construction extrusion businesses might see a rebound in orders. In the aluminium wire and cable sector, demand from the power grid terminals could improve operating rates. Given these expectations, SMM predicts that the PMI for the domestic aluminium processing sector will remain stable above the expansion threshold in October.