Operating rate at major aluminium processors continued to drop, affected by power curtailment in Henan

SHANGHAI, Jul 19 (SMM) - Operating rates across major aluminium processors decreased 1.8 percentage points from a week ago to 70.7% last week. The main reason is that the power load in Henan is too high, prompting the province to impose staggered power use, affecting production at local aluminium plate, strip, foil and wire & cable producers.

The power restriction is expected to last until around July 18. However, major aluminium processors in Henan Province have abundant orders on hand and stepped up production at night after being restricted in the daytime. Therefore, the impact on their output was limited. Major aluminium extrusion and aluminium alloy enterprises reported stable operating rates.

The rainy season and high temperature hurt demand for construction extrusion, but major producers maintained stable production thanks to backlog orders. Aluminium prices fluctuated at a high level last week, and the SMM East China spot aluminium price was 19,280 yuan/mt as of July 16, a new high in the past month. Given the off-season and high aluminium prices, it is expected that operating rate at major aluminium processors will continue to fall this week.

Primary aluminium alloy: Operating rates at major primary aluminium alloy enterprises remained stable. Although the impact of car chip shortage, sluggish car sales and summer break at car makers continues, there is little room for operating rates to drop further, due to support from rigid demand.

Aluminium plate and strip: The operating rate of major aluminium plate and strip enterprises dropped to 75.8% mainly because one producer in Henan was forced to reduce output due to power restrictions. More and more companies have reported fewer new orders with the arrival of the off-season, but most companies said that the impact of the off-season this year is much smaller than in previous years. The orders for can stock still outstrip other plate strip products, and this situation is expected to continue through the rest of the year. Some producers in Henan shut down or cut output due to tight power supply, but the output cuts were limited and others remain in normal production. Henan is a major province of aluminium plate and strip production. The shortage of power supply has become an important factor affecting the operating rate of the aluminium plate and strip industry in the short term. According to market sources, the power curtailment problem is expected to be alleviated on July 18. If the shortage of power supply is alleviated significantly this week, operating rate is expected to rebound slightly. If the power shortage intensifies, the operating rate of the aluminium plate and strip industry will continue to decline, led by major producers in Henan.

Aluminium wire and cable: The operating rate of major aluminium wire and cable companies fell by 3 percentage points. Large enterprises in Jiangsu and Zhejiang maintained stable operating rates, while those in Henan reduced output due to power curtailment and may keep low operating rates in the short term. Aluminium prices hit a one-month high and new orders were limited, prompting some companies to slightly lower production plans. The operating rate of large companies is expected to decline slightly in the short term.

Aluminium extrusion: The operating rate of large-scale aluminium extrusion companies remained stable. Some large-scale companies still have sufficient orders on hand, but small and medium-sized companies are more affected by the off-season, forcing some of them to lower production. Demand for construction extrusion from real estate and infrastructure sectors weakened as a result of the rainy season and high temperature. In terms of industrial extrusion, demand from the electronics, rail transport and aluminium formwork sectors was strong, while demand from the automotive industry remained sluggish due to car chip shortage. Operating rate of photovoltaic-related extrusion producers remained low due to rising silicon prices. Downstream customers were less active in placing orders and slowed down picking up goods amid high aluminium price, leading to a backlog of finished product inventory at some companies. Operating rate is expected to be little changed this week.

Aluminium foil: Operating rates at major aluminium foil producers fell further to 86.3%.  Aluminium prices stabilised at above 19,000 yuan/mt, which already had a certain impact on the willingness to produce in the aluminium foil industry. Power restrictions in Henan had limited impact on local large aluminium foil producers. Operating rates at major aluminium foil producers will continue to drop slightly in the off-season.

Secondary aluminium alloy: Operating rate of major secondary aluminium enterprises was largely stable. Secondary aluminium price rose 300 yuan/mt as aluminium scrap price followed A00 aluminium price up. Higher raw material price discouraged secondary aluminium producers from purchasing. Orders at some producers picked up slightly as car chip shortage was slightly alleviated, but most producers reported decline in orders due to the off-season. Some companies have responded to the shortage of low-cost raw materials through production cuts since July. Operating rate is expected to stabilise or continue to fall slightly this week.