Operating rates at aluminium processors dropped slightly amid increased finished product inventory

SHANGHAI, Jun 15 (SMM) — Operating rates across major aluminium processors decreased 0.7 percentage point from a week ago to 75.7% last week. Aluminium wire and cable outperformed other sectors on the back of backlog orders. With smaller fluctuations of aluminium prices, wait-and-see sentiment among aluminium foil companies eased and their operating rates rebounded slightly. Operating rate at aluminium extrusion and alloy producers showed signs of weakening as orders dropped slightly. Car makers will continue to cut production and orders due to high temperature in summer and prolonged car chip shortages. End-users restocked as needed. Power restrictions in Guangdong eased slightly, allowing some producers to resume normal production. June remains as the peak season for aluminium for construction use. Operating rates across major aluminium processors are expected to continue to drop slightly this week, but remain relatively high.

Primary aluminium alloy: Operating rates at major primary aluminium alloy enterprises were flat from the previous week. Aluminium prices fluctuated narrowly above 18,000 yuan/mt.  Power restrictions and pandemic in Guangdong have not been significantly alleviated. Sluggish car consumption and chip shortages persist. Some car makers will close earlier than usual in the summer months due to insufficient orders. Orders for primary aluminium alloys fell sharply, with many large producers reporting 10-25% decline in production and sales in May when compared with normal levels. It is expected that operating rate will remain at a low level in the coming months.

Aluminium plate/sheet and strip: Operating rate of major aluminium plate/sheet and strip companies dropped to 87% as some companies put facilities under maintenance in turns after running at full capacity for a long time. Clients rarely delayed taking delivery amid smaller fluctuations of aluminium prices. Large producers will maintain high operating rates due to backlog orders in the peak season.

Aluminium wire and cable: The operating rate of major aluminium wire and cable companies remained stable. Large producers hold large number of positions in the futures market for hedging purpose and purchased spot cargoes based on hedging cycle. Some producers reduced positions in the futures market due to bearish sentiment towards aluminium prices. Bid winners of the State Grid Baihetan-Jiangsu UHV project began to deliver orders. The operating rate of major aluminium wire and cable companies will remain stable in the short term.

Aluminium extrusion: Operating rates at major aluminium extrusion producers dropped slightly. Large enterprises maintained full capacity on the back of abundant orders. Large construction extrusion companies reported strong demand from the real estate and infrastructure sectors, while small and medium-sized companies said clients were cautious about placing orders amid volatile aluminium prices. In terms of industrial extrusion, demand from the electronic and rail transport sectors was strong, while demand from the car industry remained affected by chip shortfalls. High silicon prices kept operating rate in the photovoltaic industry low. Downstream customers were not very enthusiastic about picking up goods, pushing up finished product inventory at some companies to more than 20 days. Operating rate is expected to be little changed this week.

Aluminium foil: Operating rates at major aluminium foil producers rebounded to 90.3%. Eased wait-and-see sentiment due to smaller fluctuations of aluminium prices led to the increase in operating rate. Large aluminium foil companies generally hold two months of orders. Companies in Guangdong remain affected by power cuts. Power curtailment in Yunnan caused local aluminium production to shrink, but it has not affected raw material supply to local aluminium foil companies. Operating rate is expected to stabilise this week.

Secondary aluminium alloy: Operating rate of secondary aluminium alloy enterprises dropped 0.6 percentage point from a week ago to 58.8%. Die-casting companies restocked as needed and kept low raw material inventory. Downstream sectors have gradually entered the traditional off-season in June. This, coupled with car chip shortfalls, power cuts and pandemic in Guangdong, hurt orders for secondary aluminium. Secondary aluminium plants reduced aluminium scrap purchase due to weaker demand. Operating rate is expected to stabilise or continue to fall slightly this week.