Overall Inventory Buildup During Holiday Period Is Controllable; Domestic Aluminum Inventory to Reach "Critical Period" After Holiday {{SMM Analysis}}

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Let's first review the inventory performance before the Labour Day holiday. Driven mainly by restocking demand ahead of the holiday and a slower pace of arrivals since the second half of April, coupled with a temporary lull in disruptions from imported supplies, the destocking of domestic aluminum ingot inventory accelerated again towards the end of April, approaching the 600,000 mt mark, providing a certain degree of upward support for aluminum prices before the holiday. According to SMM statistics, as of April 30, the inventory of aluminum ingot at major domestic consumption hubs stood at 614,000 mt, a decrease of 29,000 mt from Monday of the same week. Domestic aluminum billet inventory also approached the 150,000 mt mark.Currently, domestic aluminum ingot inventory has remained at a low level for the same period over the past three years for seven consecutive weeks since the destocking inflection point appeared in early March. The accelerated decline in aluminum billet inventory at the end of April also exceeded expectations, falling to a low point for the same period over the past three years. In other words, domestic aluminum inventory has recently been in an advantageous position at an absolute low for the same period over the past three years.

Despite expectations based on in-transit data and feedback from multiple sources before the Labour Day holiday that domestic aluminum product arrivals during the holiday might exceed those of the same period last year, attention should be paid to the risk of periodic inventory buildup caused by concentrated arrivals during the holiday. Reviewing pre-holiday expectations, Gongyi and Foshan regions were expected to face relatively severe pressure from concentrated arrivals after the holiday, while Wuxi region was expected to experience relatively milder pressure. SMM estimates that the total arrivals in the three regions during the Labour Day holiday will be approximately 72,000 mt, an increase of about 10,000 mt YoY. Among them, the planned arrivals in Wuxi will be approximately 22,000 mt, a decrease of about 10,000 mt YoY; the planned arrivals in Foshan and Gongyi will be approximately 20,000 mt and 30,000 mt respectively, each increasing by about 10,000 mt YoY.So, what was the actual situation of domestic aluminum ingot arrivals during the Labour Day holiday? According to the latest SMM statistics, the actual arrivals in the three regions during the holiday were approximately 56,000 mt, a decrease of about 16,000 mt from pre-holiday expectations and about 6,000 mt YoY. The actual arrivals in Wuxi region were 18,000 mt, in Foshan region were 18,000 mt, and in Gongyi region were approximately 20,000 mt, all lower than expected.

Affected by the holiday, domestic aluminum inventory experienced its first inventory buildup since March. However, due to lower-than-expected aluminum ingot arrivals during the Labour Day holiday, the overall domestic inventory buildup after the holiday was controllable, and there was no significant pressure on aluminum price performance in the short term.According to SMM statistics, as of May 6, the inventory of aluminum ingot at major domestic consumption hubs stood at 636,000 mt, an increase of 22,000 mt from pre-holiday levels (April 30) and a decrease of 142,000 mt YoY, still remaining at a low level for the same period over the past three years. In terms of outflows from warehouses, the total outflows of aluminum ingot in China during the holiday week (from April 29 to May 6) were 99,000 mt, an increase of about 10,000 mt YoY, showing a notable performance.According to SMM, the overall inventory buildup in Gongyi region after the holiday was significantly less than pre-holiday expectations. However, the current in-transit volume is still relatively large, and there is a possibility of some goods being stranded at platforms. Meanwhile, due to the mediocre performance of downstream consumption, the overall outflows in Gongyi region around the Labour Day holiday were relatively low. Attention should still be paid to the risk of periodic inventory buildup in Gongyi region after the holiday. Arrivals in Wuxi region were less than pre-holiday expectations, and the current in-transit volume is relatively moderate, so the inventory pressure is expected to be limited in the future. Arrivals in Foshan region were also slightly less than pre-holiday expectations, but the actual arrival situation still needs to be further judged based on the arrival volumes in the next few days and over the weekend.

Overall, the performance of domestic aluminum ingot inventory during the Labour Day holiday was slightly better than expected, with the overall inventory buildup being controllable and having no significant pressure on aluminum price performance in the short term after the holiday.However, the market's focus is on consumption and outflow performance after the holiday. Currently, it is a critical stage in the transition between the off-season and peak season. After the first inventory buildup in domestic aluminum inventory since March, will it evolve into the beginning of a continuous inventory buildup trend? Can the inventory data this Thursday and next Monday prove the resilience of domestic aluminum consumption and bring unexpected surprises to the market? All of this requires time to observe.For now, SMM still maintains a relatively optimistic outlook, expecting that domestic aluminum ingot inventory will continue to decline slightly and steadily in the first half of May, operating within the range of 600,000-680,000 mt.

In terms of aluminum billet inventory,Affected by the holiday, according to SMM statistics, as of May 6, the inventory of aluminum billet at major domestic consumption hubs reached 166,500 mt, an increase of 15,500 mt from pre-holiday levels (April 30), but still a slight decrease of 2,100 mt YoY.Before the holiday, domestic aluminum billet inventory benefited from the improvement in downstream construction extrusion order operating rates, with the rigid demand consumption for aluminum billet showing a marginal strengthening trend. Coupled with a significant pullback in aluminum prices from previous levels, the production enthusiasm of end-use markets improved, driving accelerated destocking. Inventory had remained at a low level for the same period over the past three years for two consecutive weeks. Meanwhile, during the pre-holiday stockpiling window, concentrated procurement occurred, with aluminum billet producers maintaining low in-plant inventory levels. Market suppliers also actively lowered prices before the holiday to accelerate the pace of shipments. With fewer arrivals at social warehouses and continuous increases in outflows, the decline in inventory levels intensified. However, from the outflow data around the Labour Day holiday, the outflows of aluminum billet from April 29 to May 6 were 42,600 mt, a decrease of 9,300 mt YoY. As the peak season gradually transitions to the off-season, the ability of domestic aluminum billet downstream consumption resilience to continue has faced certain challenges.After the holiday, aluminum billet inventory may face the risk of short-term inventory buildup due to increased arrivals at social warehouses as producers operate normally during the holiday. SMM expects aluminum billet inventory to operate within the range of 150,000-200,000 mt. Whether an inventory buildup trend will form requires close attention to the sustainability of consumption after the Labour Day holiday.

On the demand side of aluminum billet,In the past week, the overall operating rate of the domestic aluminum extrusion industry declined by 0.5 percentage points MoM to 59%.Observing by sector: In the building materials sector, enterprises reported a slowdown in the decline of the real estate market, with sales showing a rebound trend. The transmission effect of real estate support policies has gradually emerged, and infrastructure orders in second- and third-tier cities have maintained stable growth. Specifically, orders for curtain walls and doors and windows in central China are saturated. Some enterprises in Shandong and surrounding areas indicated that they would maintain normal production during the Labour Day holiday, with the current volume of orders on hand for building materials exceeding that for industrial materials. Leading enterprises in the building materials sector in South China reported that building material orders have remained stable since the beginning of the year. This week, they continued to implement a production strategy based on demand and did not conduct raw material stocking before the holiday, only maintaining inventory levels necessary for safe production. In the automotive extrusion sector, affected by the insufficient momentum of enterprises that had previously experienced concentrated order releases, industry orders have shown a downward trend, with relatively limited new orders. This week, the operating rate in this sector has slightly pulled back. In the PV extrusion sector, affected by uncertainties during the policy transition period, current module enterprises have adopted a cautious production scheduling strategy. According to SMM surveys, due to the mismatch between the module production cycle and the grid connection deadline, current production orders cannot be completed and connected to the grid before the May 31 deadline. Coupled with the fact that follow-up policy transition documents have not yet been issued, downstream module manufacturers have generally lowered their order demand expectations for May by 10%. This week, the operating rates of top-tier enterprises in the PV extrusion sector have slightly declined, mainly shifting to implement production scheduling for newly signed orders in May. Relevant enterprises have no plans to halt production during the Labour Day holiday and will maintain normal production. SMM will continue to track the actual implementation of orders in various sectors.
 

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