SHANGHAI, Oct. 10 (SMM) – Domestic aluminum inventories in trading markets approached one million mt after the 8-day Chinese holidays due to increased arrivals and stagnating consumption during the holidays, adding to oversupply pressure.

SMM’s statistics reveal that trading aluminum inventories in Shanghai, Wuxi, Nanhai and Hangzhou have reached 985,000 mt after the Chinese holidays, up 96,000 mt from pre-holiday period. 

Aluminum oversupply has been aggravated along with the commissioning of new capacity in northwest China and weak consumption, weighing down aluminum prices. SMM data shows that trading aluminum inventories in Shanghai, Wuxi, Nanhai and Hangzhou were merely 360,000 mt after the 2011 Chinese National Day holiday, up 60,000 mt compared with pre-holiday period. In stark contrast, trading aluminum stocks after the holiday this year have far exceeded those of last year in terms of both volume and growth rate. Huge inventories will leave aluminum prices under great downward pressures.   

Aluminum smelters in central and southwest China have suffered losses from the current weak aluminum prices. Production cuts at domestic aluminum smelters, however, are limited as some local governments are offering preferential measures to local smelters. Besides, the commissioning of new aluminum capacity in northwest China with low costs has also allowed aluminum output in China to maintain a growth rate of above 12%. 
 
Aluminum consumption is weakening against increasing supply. Operating rates at producers of aluminum extrusion, plate, sheet, strip and alloy are merely 50-60%, resulting in significantly slower pace of consumption growth so far this year.

SMM expects the growth rate of trading aluminum stocks to slow down somewhat in the future as production resumption at downstream producers will boost demand for raw materials. However, mounting inventories will still put great downward pressure on aluminum prices, as consumption has showed no signs of turning around.