Price Warning: China Aluminum Inventories Surge by Three Times from Record Low in 2016

Published: Feb 22, 2017 11:16
Aluminum inventories in domestic five major trading markets started rising from early 2017 in response to growing output, easing of transportation disruption and no demand improvement in early year.

SHANGHAI, Feb. 22 (SMM) – Inventories of aluminum ingot in China’s five major trading markets were 905,000 tonnes as of February 20, surging 319 percent from the record low of 216,000 tonnes seen on September 29, 2016, and 166 percent from the level seen in early 2017.

China’s aluminum inventories dropped sharply in 2016 due mainly to following two factors. First, tumbled aluminum prices in 2015 triggered a round of inefficient capacity cuts, production reduction and suspension. According to SMM data, China’s aluminum capacity grew by 9 percent in 2016, unchanged from 2015’s, but down sharply from the growth of 18 percent in 2014. Second, a large amount of aluminum ingot was piled up in Xinjiang due to transportation disruption, another factor behind a big drop in inventories in the five trading markets.

In 2016, domestic aluminum producers gradually restarted production and put online new projects with aluminum prices bouncing back, but mainly in 2H 2016, restricting contribution to total output. SMM data show that China’s aluminum output was 31.80 million tonnes in 2016, up 4 percent on a yearly basis, down from the growth of 10.3 percent in 2015.

Aluminum inventories in domestic five major trading markets started rising from early 2017 in response to growing output, easing of transportation disruption and no demand improvement in early year.  

According to SMM data, China’s aluminum output, which gradually grew from 2H 2016, increased to 3.04 million tonnes in January 2017, refreshing a record high. Shipments from Xinjiang increased, with average daily shipments of aluminum ingot and billet above 22,000 tonnes recently, despite of pressures from new output. In addition, downstream producers, which just returned from the holiday, generally took a wait-and-see stance, especially after aluminum prices surged. This, together with suppliers’ high sales interest at highs, added to inventory pressures, and also dragged down aluminum prices in China’s spot market.  

The jump in domestic aluminum inventories has become a time bomb for aluminum market, which surged in early 2017, and cautious attitude should be taken to possible price declines after market overdone speculations over the impact on aluminum industry from environmental factor, SMM says.

Buy The Rumor, Sell The Fact in China Aluminum Market? SMM Exclusive

In the medium and long term, the big growth of China’s aluminum output, which is expected to reach 11.6 percent, will continue adding to market inventories and weigh down aluminum market as well, SMM adds.  

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Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM‘s internal database model. They are for reference only and do not constitute decision-making recommendations.

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