Domestic social inventory of aluminum ingots is approaching the annual high [SMM Analysis]

After the first week of August, there were no signs of a slowdown in the accumulation of domestic aluminum ingots. The rapidly increasing inventory is approaching the peak of 870,000 mt seen after this year's Chinese New Year. As of August 5, 2024, SMM reported a total social inventory of aluminum ingots at 830,000 mt, (the amount for sale stood at 704,000 mt), up 16,000 mt from last Thursday and 313,000 mt higher YoY. Regarding pick-up from warehouses, last week’s domestic aluminum ingot pick-up from warehouses decreased by 6,100 mt WoW to 104,400 mt. SMM believes that weak fundamentals and bearish macro sentiment during the off-season have led downstream players to adopt a wait-and-see approach. The low-level fluctuations in aluminum prices last week intensified market concerns about a new round of declines, resulting in a continuous drop in pick-up from warehouses. Fundamentally, the aluminum market still faces a scenario of increasing supply together with weak demand, making a significant short-term reversal unlikely. Market sentiment towards purchasing aluminum ingots remains cautious, and with aluminum prices hitting new recent lows on August 5, SMM expects that pick-up from warehouses will continue to struggle this week.

By region, inventories in the three major consumption areas diverged significantly this week. In Wuxi, after an inventory build-up of 18,000 mt, the inventory gap with Foshan has exceeded 100,000 mt. Mainly due to a significant YoY increase in ingot production in Xinjiang, Inner Mongolia, Qinghai, and Ningxia, the continuous supply looseness led to concentrated arrivals in Wuxi again over the weekend. However, the pick-up from warehouses in east China last week showed no improvement, down 5,200 mt WoW. In Gongyi, supply and demand remained relatively stable recently, with inventory and pick-up from warehouses flat from a week ago. Foshan's pick-up from warehouses was also stable last week, with a destocking of 3,000 mt from last Thursday, mainly due to a decrease in arrivals. According to the SMM survey, although the increase in ingot production in Yunnan was significant after full resumption, the impact on the south China market has weakened recently as some Yunnan sources were diverted to the southwest market.

Overall, since H2, the ingot production from provinces such as Yunnan, Xinjiang, Inner Mongolia, and Qinghai has been relatively high YoY, with the supply side remaining loose. The weak trend in aluminum prices has not significantly stimulated downstream pick-up demand. At the beginning of August, the pick-up from warehouses and destocking of domestic aluminum ingots were still not optimistic. The inflow of bonded zone inventory has become a new risk point for aluminum ingot inventory in August, exacerbating the already high domestic aluminum ingot inventory, which may further suppress both futures and spot aluminum performance. SMM expects that the overall decline in domestic aluminum ingot inventory in August will remain limited, and the short-term trend of inventory accumulation is difficult to change. In the first half of August, it is expected to fluctuate between 780,000-850,000 mt, and it is not excluded that it may hit a record high for the year.