Rapid Recovery from Flooding in Henan Led to a Slight Rebound in Overall Downstream Operating Rate

SHANGHAI, Aug 2 (SMM) - Operating rate of large aluminium processing enterprises rose 2.6 percentage points from a week ago to 69.1% last week as operating rate at large aluminium plate/sheet and strip enterprises in Henan province jumped more than 20 percentage points to pre-flooding level. However, the overall operating rate dropped 1.6 percentage points when compared to two weeks ago as the impact of the off-season remains strong.

Primary and secondary aluminium alloy sectors, which rely heavily on demand from the automobile industry, are the mostly affected ones by the off-season, followed by construction extrusion. Demand for cables and packaging, on the other hand, remains relatively strong. In addition to the off-season, other factors will also impact operating rates, including recovery from flooding and typhoon, the possible spread of the pandemic, and power curtailment. The overall operating rate may drop slightly this week.

Primary aluminium alloy: Operating rate of large primary aluminium alloy enterprises remained stable. Although the flooding disaster in Henan, typhoon “In-Fa”, and worsening pandemic situation in Jiangsu have not yet had a strong impact on primary aluminium alloy enterprises, many companies worry that transportation efficiency will be affected if the pandemic escalates. Consumption is still in the off-season, and the shortage of chips has not shown signs of alleviation in the short term. Operating rate will remain stable over the next few weeks, provided that the pandemic does not get out of control.

Aluminium plate/sheet and strip: Operating rate of large aluminium plate/sheet and strip companies rose to 81.2% as producers in Henan resumed production quickly after the flood basically got under control. Tight power supply in Henan has been solved, and there will be no power shortage in the short term. Companies generally report that supply of can materials is extremely tight this year and orders did not fall. Aluminium plates used in building materials have entered the peak season. Operating rate will climb further this week if there are no more flooding events and if the pandemic does not worsen.

Aluminium wire and cable: Operating rate of large aluminium wire and cable companies was largely stable. Typhoon had small impact on production at producers in Jiangsu and Zhejiang, but transportation was restricted. Productions in Henan are expected to return to normal this week. Aluminium prices traded between 19,300-19,700 yuan/mt, and large enterprises purchased on-demand. Operating rate will remain stable in the short term, with attention focusing on bid invitations from State Grid.

Aluminium extrusion: Operating rate at large aluminium extrusion enterprises dropped slightly. Some companies cut output as summer heat affected sales. Large companies reported stable orders by leveraging their own capital and product advantages, while orders at small and medium-sized enterprises fell sharply. High aluminium prices turned downstream clients cautious about placing orders. Some companies stocked up due to a bullish outlook on aluminium prices. Operating rate may continue to drop slightly in the short term.

Aluminium foil: Operating rate at large aluminium foil companies rose 2.9 percentage points to 84.9%.The main reason for the rebound is that enterprises in Henan resumed production after flooding and power curtailment problems have been basically resolved. The pandemic outbreak spread rapidly in Jiangsu province. Nanjing is under strict control, but companies in other parts of Jiangsu are under normal production. Most aluminium foil companies said that the impact of the off-season this year is smaller than the same period of previous years. Operating rate fell but remained at a relatively high level. Some aluminium plants in south-west China have already cut production due to power restrictions, which may drag down the overall operating rate of the aluminium foil industry.

Secondary aluminium alloy: Operating rate of large secondary aluminium alloy enterprises dropped 0.2 percentage point to 54.8%.  Aluminium scrap prices followed aluminium prices up due to tight supply and import restrictions, and secondary aluminium prices also rose, which kept die-casting companies purchasing on-demand. Summer break at some automobile makers resulted in reduced orders at die-casting and secondary aluminium plants. Operating rate is expected to stabilise or continue to fall slightly this week.