SHANGHAI, Jun 24 (SMM) - Following the seasonal accumulation after the Spring Festival, the inventories of aluminium ingots have entered a downward trajectory since March. SMM statistics showed that the aluminium ingot social inventories across China’s eight major markets totalled 751,000 mt as of last Thursday June 23, down 172,000 mt in a month and also at a low level when compared with the same period in years past. SMM attributes the decline to the following factors.  
First of all, the total supply of aluminium ingots in China maintained a year-on-year decline from January to May due to a sharp drop in the imports. From January to May, China’s aluminium ingot imports decreased by 420,000 mt YoY, and the net imports fell by 580,000 mt YoY. Fewer overseas aluminium ingots flowed into China amid a closed import window. Instead, more aluminium ingots were shipped out of bonded areas in Guangxi, Shanghai and other regions for exports. China exported 170,000 mt of aluminium ingots from January to May, a staggering leap from 4,000 mt in the same period last year. As LME aluminium outperformed SHFE aluminium, the export profits of aluminium semis increased, incentivising Chinese companies to sell their products overseas. China exported 2.65 million mt of aluminium semis from January to May, a year-on-year rise of 27%.

Secondly, the increased proportion of aluminium liquid in aluminium smelting also reduced the inventories of ingots. According to SMM statistics, aluminium liquid accounted for 66% of aluminium output in May, an increase of 5 percentage points from the end of February. Thus, a smaller percentage of aluminium was cast into ingots. 

The third contributor was dip buying by downstream producers in mid-June. Downstream producers stepped up their purchases of aluminium ingots and billets after aluminium prices retreated from highs. 
The fourth reason was that aluminium smelters reduced their shipments to warehouses in major markets in the wake of the collateral scandal in late May and shipped more ingots directly to downstream buyers instead. Not only that, a certain amount of aluminium ingots were even transferred to other warehouses due to panic triggered by the collateral scandal.  
Despite the destocking cycle, aluminium prices showed a downward trend as a result of pessimism over the market demand and insignificant recovery of downstream orders.  However, the operating rates in the downstream sectors are gradually picking up. SMM shall keep a close eye on whether aluminium prices will bottom out after the downstream demand recovers.