Impact of Regional Environmental Protection Inspections Weakens, Plate/Sheet, Strip and Foil Production Rebounds but Fails to Reverse Overall Downtrend [SMM Weekly Downstream Survey]

This week, the operating rate of leading domestic downstream aluminum processing enterprises continued to decline, dropping by 0.1 percentage points WoW to 60.3%. Operating rates across various sectors showed mixed performance. The operating rates of aluminum plate/sheet and strip and aluminum foil rebounded after several weeks, mainly due to the easing of environmental protection inspections in Henan, allowing affected production lines to resume operations. Additionally, backlog orders from earlier export rushes were concentratedly produced and delivered before the Chinese New Year, driving the weekly operating rate rebound. However, uncertainties surrounding pre-holiday environmental inspections may disrupt production again. The operating rates of the wire and cable and extrusion sectors continued to decline. The wire and cable sector's operating rate fell primarily due to sluggish cargo pick-up by the northern power grid, difficulties in shipments in some regions, and dispersed post-holiday pick-up, leading to low production confidence among enterprises. Meanwhile, the aluminum extrusion sector was significantly impacted by the off-season, with downstream cargo pick-up slowing and enterprises gradually entering holiday mode, reducing demand. The primary factor affecting the secondary alloy sector's production remains raw material shortages, while the primary alloy sector maintained stable operations. Overall, the off-season characteristics of the downstream aluminum market have become increasingly evident, and as enterprises gradually enter the Chinese New Year holiday, operating rates are expected to continue declining. According to SMM forecasts, the operating rate of leading domestic downstream aluminum processing enterprises is expected to drop by another 1.1 percentage points next week to 59.2%.

This week, the operating rate of the primary aluminum alloy sector remained stable at 55%. The primary aluminum alloy market remained steady, with leading enterprises making few adjustments to their operating rates. Although aluminum prices were relatively low during the week, downstream stocking enthusiasm remained sluggish, and alloy enterprises continued to face significant inventory pressure. Future attention should focus on fluctuations in the operating rate of the primary aluminum alloy sector before and after the Chinese New Year.

This week, the operating rate of leading aluminum plate/sheet and strip enterprises rose by 2.6 percentage points to 68.8%. Environmental protection inspections in Henan eased this week, allowing some affected production lines to resume operations. Additionally, backlog orders temporarily delayed due to earlier export rushes were concentratedly produced and delivered before the holiday, leading to a rebound in the operating rate. However, pre-holiday environmental inspections may cause further fluctuations, posing a significant uncertainty for the aluminum plate/sheet and strip market.

This week, the operating rate of leading domestic aluminum wire and cable enterprises recorded 63.6%, down slightly by 1.4 percentage points WoW. Operating rates continued to weaken, mainly due to poor cargo pick-up by the northern power grid, with some regions experiencing shipment stagnation. Additionally, post-holiday pick-up is expected to be dispersed, leading to pessimistic production schedules among some enterprises. However, there is a significant north-south disparity, with enterprises in south China maintaining basically stable operating rates and smooth terminal cargo pick-up. The aluminum wire and cable industry, having undergone a concentrated delivery phase for most of 2024, is now transitioning into the off-season. While 2024 was a year of concentrated terminal cargo pick-up, providing strong support for industry growth, the bidding situation for 2024 remains temporarily unfavorable. The first half of 2025 may enter a "dormant period" for the industry, awaiting subsequent power grid orders to revive the operating rate of the aluminum wire and cable sector. Currently, the industry is significantly affected by the off-season, and SMM expects operating rates to fluctuate downward.

This week, the operating rate of domestic aluminum extrusion enterprises recorded 44.5%, down by 2.0 percentage points WoW. The decline was mainly due to the traditional off-season. Except for automotive extrusion, operating rates in other segments showed significant declines. Specifically, the construction extrusion segment experienced a strong off-season atmosphere, with downstream enterprises gradually entering holiday mode as the Chinese New Year approached, reducing demand. In the industrial extrusion segment, PV extrusion entered the off-season, with reduced orders and slower cargo pick-up by some component manufacturers, leading to finished product inventory backlogs at extrusion plants. Automotive extrusion remained stable. Overall, the positive performance of individual segments could not offset the overall downward trend during the off-season. As the Chinese New Year approaches, enterprises are gradually entering holiday mode, and operating rates are expected to continue fluctuating downward.

This week, the operating rate of leading aluminum foil enterprises rose by 0.7 percentage points to 75.4%. The conclusion of the latest round of environmental protection inspections in Henan allowed some disrupted aluminum foil enterprises to resume normal production. Although it is the off-season for consumption, it coincided with the pre-holiday downstream stockpiling period, leading to a slight rebound in the operating rate this week. However, constrained by weak market demand, this rebound appears to be short-lived, and the short-term outlook for the aluminum foil sector remains one of gradual cooling.

This week, the operating rate of leading secondary aluminum enterprises fell by 0.4 percentage points WoW to 54.4%. Currently, raw material shortages and regional environmental protection inspections remain the primary factors affecting the operating rate of the secondary aluminum sector. Under tight supply conditions, the price difference between primary metal and scrap continued to narrow this week, with many secondary aluminum manufacturers facing material shortages. Additionally, enterprises in regions like Chongqing, which reduced production due to environmental factors, have yet to resume normal operations. In northern regions, some enterprises have entered early holidays due to cold weather, while most others are expected to begin their Chinese New Year holidays after January 22. Overall, in the short term, the operating rate of the secondary aluminum sector is expected to decline further due to raw material and environmental factors.

(SMM Aluminum Team)