SMM Analysis: SHFE Aluminum Recorded Two Days of Gains amid Rising Downstream Operating Rates and Extended Destocking

SHANGHAI, May 27 (SMM) - SHFE aluminium closed up 1.22% at 20,775 yuan/mt today.

The average operating rate across major aluminium processing enterprises increased 2.7 percentage points from a week ago to 61.8% this week, but has not recovered to levels seen before the Labour Day holiday. The operating rates in the aluminium extrusion sector rose thanks to improved pandemic situation. The aluminium wire and cable industry also performed well on the back of sufficient orders on hand. The operating rates in the primary and secondary alloy sectors did not increase significantly due to slow recovery of auto industry. Although the operating rates of aluminium plate/sheet, strip and foil producers remained stable, enterprises are more pessimistic about new orders in the future. In terms of different regions, except for an increase in operating rates in Shandong, Jiangsu, Zhejiang and Shanghai, and Hunan, which were driven by the improvement of the pandemic, operating rates in other regions did not change much.

As of May 26, aluminium ingot social inventory across eight major markets in China totalled 936,000 mt, down 29,000 mt from a week ago and 50,000 mt lower than the end of April. Aluminum billet inventory fell 4.61% to 130,100 mt.

Due to the production cuts and capacity replacement during the month, the growth rate of domestic operating aluminium capacity has slowed down. The ratio of aluminium liquid output of smelters in north-west China has increased. These have contributed to the destocking of aluminium ingot social inventory. However, the market also needs to pay attention to the inventory of aluminium intermediate products.

This week, the downstream demand side remained stable as a whole, and the production of construction extruders in some regions has resumed, but the demand for aluminium from automotive and construction sectors was still relatively weak. The improvement in domestic consumption and destocking will provide support to aluminium prices, but macroeconomic pessimism may prevent aluminium prices from rising significantly.