SHANGHAI, Nov. 3 (SMM) – SHFE aluminum has soared nearly 31% so far this year and gained almost 15% in October. Such impressive rise, which cheered aluminum smelters up, has caused a lot of pain to downstream producers.
Downstream Producers Buy as Needed or Postpone Orders
Surging aluminum prices have added to costs at processors and greatly squeezed their profit. Hence, some processors have cut purchases recently, working through stocks on hand or restocking as needed.
It is heard only 10% of workers are at work at a few aluminum processors. SMM learned large processors are still in normal production, though. Some processors have adjusted delivery date for orders. High aluminum prices have big impact on orders received previously, but will have little impact on new orders for now.
SMM expects operating rate to drop at domestic aluminum processors in October from September. The main reason is retail customers of SMEs refrained from placing orders against surging aluminum prices.
Imported Aluminum Flows into Domestic Market as Import Window Opens
Record low aluminum stocks in China’s five major markets are the biggest driver behind aluminum price gains. Besides, rising steam coal and alumina prices and transport costs also contributed to the price rise.
Aluminum import window has opened recently. Will this ease supply tightness in domestic market?
Aluminum available in the market comes mainly from imported aluminum in bonded zone, given low stocks of domestic aluminum. SMM learns there are some 30,000-40,000 tonnes of aluminum ingots in bonded zone.
About 20,000-30,000 tonnes of aluminum ingots are expected to arrive in China now that arbitrage window has opened. Concentrated arrivals of imported aluminum ingots will temporarily ease tight supply in east and south China markets and weigh down spot premiums. However, SMM learns aluminum ingot imports are limited at present, which has limited impact on aluminum prices.
Aluminum stocks in China will remain low for the foreseeable future, and this will offer support to aluminum prices, SMM expects.
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