According to the SMM analysis team, the aluminium rod supply was largely stable in December. In December 2023, the existing domestic aluminium rod production capacity was 7.22 million mt. In December (31 days), the domestic aluminium rod production totalled 382,000 mt, up 0.26% MoM. The operating rate of aluminium rod was 63.5% in December, up 0.2% MoM from 63.3% in November. The annual production of aluminium rod was 4.1935 million mt in 2023, up 10% MoM. Due to high conversion margins and resilient downstream demand, domestic aluminium rod production and operating rates increased slightly in December. According to SMM’s research, new capacity will be commissioned in Shandong in the near future. Affected by intensifying competition and shrinking profits in the domestic aluminium rod market, SMM predicts that the supply of aluminium rods will be largely stable.
On the demand, affected by falling temperatures, delivery slowdown, and weakening willingness of companies to produce due to rebound in aluminium prices, the operating rates of downstream aluminium wire and cable companies continued to decline in December, down by 1.7 points MoM to 47.83%. In terms of company types, as leading companies have hedging positions, they were immune to rebound in aluminium prices. They reported abundant orders and shipments remained stable based on the orders. However, the companies are keen on increasing their cash flows at the end of the year, dragging down the operating rates; in terms of small and medium-sized enterprises, they usually purchase on the dip and hardly make purchases, thus their operating rates were hit hard by aluminium prices. The aluminium base prices rose significantly in mid-December. The average price of SMM A00 aluminium in December increased by 271 yuan MoM to 19,065 yuan/mt, with the operating rates of small and medium-sized enterprises being weak due to rising costs. In terms of regions, the operating rates in Jiangsu and Shandong are generally stable. Demand from enterprises in Henan and Hebei weakened, resulting in muted trades in the market.
In terms of conversion margins of aluminium rod in 2023, the average ex-factory conversion margins for aluminium rods in Shandong was 443 yuan/mt, down by 89 yuan/mt YoY; the average price in Henan was 467 yuan/mt in 2023, down by 9 yuan/mt YoY; the average price in Inner Mongolia stood at 304 yuan/mt in 2023, down by 9 yuan/mt YoY; the average price in Guangdong stood at 619 yuan/mt in 2023, up by 165 yuan/mt YoY.
In terms of conversion margins during the month, aluminium prices continued to decline in early December 2023, and then as aluminium social inventories fell below 500,000 mt, aluminium prices began to rebound. In early-to-mid December, aluminium rod manufacturers maintained firm quotations, and conversion margins remained high. The demands weakened in late December, dragging down conversion margins. During the month, the average ex-factory conversion margins for aluminium rods in Shandong was 473 yuan/mt, down by 62 yuan/mt MoM; Local companies reported that the production schedule was alleviated as the supply shifted to a surplus; in Henan, the average price was 488 yuan/mt, down by 47 yuan/mt MoM. Some local companies shut down due to environmental inspections, which will be gradually recovered in a week; the average ex-factory conversion margins for aluminium rod in Inner Mongolia was 328 yuan/mt, down by 107 yuan/mt MoM. Affected by environmental protection inspections and heavy snowfall in Hebei, downstream demand weakened significantly, resulting in muted trades. The average transaction price in Guangdong stood at 628 yuan/mt, down by 72 yuan/mt MoM. Recently, the aluminium rod market shifted into oversupply, dragging down the conversion margins of aluminium rod. In January, some wire and cable factories may maintain certain operating rates to increase the finished products inventory so as to ease the delivery pressure after the CNY holidays. However, the downstream demand is still weak, and companies are keen on increasing their cash flows at the end of the year. SMM predicts that aluminium rods conversion margins may remain weak in January.
