Aluminium Downstream Operating Rates Recovered Slightly from the Pandemic, but Some Sectors Reported Insufficient Orders

SHANGHAI, May 20 (SMM) - The average operating rate across major aluminium processing enterprises increased 0.5 percentage point from a week ago to 59.1% this week, but has not recovered to levels seen before the Labour Day holiday. Aluminium extrusion, secondary aluminium alloy, and aluminium wire & cable sectors continued to improve, mainly thanks to the improvement of the pandemic and  transportation in east China. The operating rates in aluminium plate/sheet, strip, foil, and primary aluminium alloy sectors remained largely stable as some enterprises were not severely impacted by the pandemic and there were insufficient orders. Most regions saw stable operating rates, except for a slight increase in Jiangsu, Zhejiang, Shanghai, Guangdong where the pandemic situation improved. In the short term, wire and cable companies will maintain full production schedules, while plate/sheet, strip, foil and secondary alloy producers may hardly see an increase in their operating rates, given the limited orders on hand.

Primary aluminium alloy: The average operating rate of large primary aluminium alloy enterprises remained flat at 60% this week. Despite improving pandemic in east China, producers need to digest their finished products. Weak demand in the automobile industry also discouraged alloy producers from increasing their production. Some industry players said that the overall demand in the auto industry this year is well below expectations, and the demand outlook will remain pessimistic even after this wave of pandemic is over. Therefore, it is expected that the operating rates of large primary aluminium alloy enterprises will remain largely stable in the future.

Aluminium plate/sheet and strip: The average operating rate of large aluminium plate/sheet and strip enterprises was flat at 81% this week. Although the overall fluctuation of aluminium prices was small, downstream enterprises remained cautious about placing orders. As it takes time for downstream production to recover from the pandemic in east China, demand failed to pick up. Insufficient orders forced some small enterprises to lower their operating rates, while large enterprises were able to maintain stable operating rates on the back of large backlog of orders. If end demand gradually recovers, the operating rates of large aluminium plate/sheet and strip enterprises may increase accordingly.  

Aluminium wire and cable: The average operating rate of major aluminium wire and cable companies rose 2 percentage points to 57.4% this week. The operating rates in Shanghai’s surrounding regions picked up with the recovery of transportation and improved export orders, but remained stable in other regions. Despite the pullback of aluminium rod conversion margins, wire and cable companies still restocked only as needed after purchasing on dips earlier. Large wire and cable companies generally have positions in the futures market for hedging and purchase based on their orders. In the short term, adequate orders on hand will allow large wire and cable companies to maintain full production.  

Aluminium extrusion: The average operating rate of large aluminium extruders rose 0.5 percentage point to 63% this week. This was largely driven by eased impact of the pandemic in some areas. However, the overall downstream demand was still constrained by the pandemic, and was weaker than in the same period last year. Lower logistics efficiency and rising freight rates also affected aluminium extruders. The operating rates of construction aluminium extruders hardly increased as it takes time for favourable real estate policies to pass onto the orders of extruders. In contrast, industrial extruders reported strong orders from the photovoltaic sector. As the impact of the pandemic is gradually weakening, it is expected that the overall production and orders will improve to some extent when compared with last month. The operating rates of large aluminium extruders are expected to continue to rise slightly next week.

Aluminium foil: The average operating rate of large aluminium foil enterprises remained at 79.3% this week. The pandemic in east China continued to improve, but the resumption of production in the automotive and other industries was still slow, resulting in limited new orders. Some aluminium foil companies have moved up the production schedules of orders for delivery in June to the present. A lack of new orders and worries about large fluctuations in aluminium prices discouraged aluminium foil companies from raising their operating rates. Considering that the downstream demand and pandemic situation will not change significantly in the short term, the operating rates of large aluminium foil companies are expected to remain stable next week.

Secondary aluminium alloy: The average operating rate of large secondary aluminium alloy enterprises rose 1.3 percentage points to 50% this week as a majority of producers in east China resumed their production after the pandemic and transportation in east China improved. However, the current operating rates have not recovered to the pre-pandemic levels. Although the impact of the pandemic has weakened, it takes time for downstream consumption and supply chain to recover, and orders are rising slowly. The market is pessimistic about the growth of orders in May, thus the operating rates may lack sustainable growth momentum in the short term.