On May 20, 2024, SMM reported a total social inventory of aluminum ingots of 759,000 mt, (the amount for sale stood at 633,000 mt), up 12,000 mt from last Thursday. In the second half of May, the performance of domestic aluminum ingot inventory has been closely related to the trend of aluminum prices. Since losing the nearly seven-year low of the same period last Thursday, the current inventory is 90,000 mt higher YoY, indicating that the rising aluminum prices have put significant pressure on domestic aluminum ingot inventory consumption. In terms of outflows from warehouses, last week's aluminum ingot outflows were 114,800 mt, a slight increase of 5,300 mt WoW, but still below pre-holiday levels.

SMM believes that the aluminum ingot inventory increased over the weekend due to the following reasons: (1) Increased arrival pressure. The south China saw an MoM increase of over 1,000 mt in arrivals over the weekend, mainly from Guangxi and Yunnan. Particularly, the supply disruptions in Guangxi have increased the inventory pressure on some upstream aluminum plants. Additionally, Wuxi and Gongyi also saw a certain MoM increase in arrivals. Due to a slight increase in ingot production in May, there is an expectation of further increases in domestic aluminum ingot arrivals in late May. (2) High aluminum prices continued to inhibit outflows from warehouses. In late May, as overall demand gradually transitions to the off-season and is impacted by high aluminum prices, the outflow of aluminum ingots over the weekend was less than ideal, except in Gongyi. Over the weekend, outflows from warehouses in south China decreased by 3,800 mt MoM, a significant drop of 50%, while Wuxi saw a decrease of 2,000 mt MoM. Gongyi's inventory performance was notable, with downstream pick-up efforts increasing recently. Gongyi's outflows from warehouses increased by 12,000 mt MoM, and aluminum ingot inventory decreased by 2,000 mt, making it the only major consumption area in China to continue reducing inventory. However, the sustainability of this trend remains to be seen.

Regarding aluminum billet inventory, supported by the "price for volume" strategy in processing fees, the weekly operating rate of downstream aluminum extrusion remains good, and the reduction in aluminum billet supply, the destocking of domestic aluminum billets continued into the second half of May, performing better than previously expected. According to the SMM survey, the disruption in the aluminum billet supply in Guangxi has not been fully resolved. Although some production resumed in Tianyang last week, increasing the output in south China by 2,600 mt WoW, the rising aluminum prices indicate that full production recovery is still far off, and the threat of further production cuts looms. According to SMM statistics, as of May 20, the social inventory of domestic aluminum billets was 185,700 mt, a decrease of 7,500 mt compared to last Thursday. After the holiday, the overall destocking of aluminum billets has been stable, with nearly 45,000 mt destocked in the past half month. Although the current inventory is still at a high level for the same period in nearly four years, the gap compared to the same period last year is also stable, currently at 37,100 mt. In terms of outflows from warehouses, last week's aluminum billet outflows decreased by 3,300 mt WoW to 52,400 mt.

Regarding the subsequent domestic inventory of aluminum ingots and aluminum billets, domestic aluminum ingot inventory faces increased pressure from the supply due to the overall expected increase in May's ingot production. At the same time, as aluminum prices break through previous highs again, the inhibitory effect on aluminum ingot outflows has increased. There are also reports of production halts and reductions among some small and medium-sized manufacturers in various downstream sectors, making the demand outlook less optimistic. SMM expects that, as the reopening of the import window still requires some time and there is no large-scale inflow of imported sources, domestic aluminum ingot inventory in May may still maintain a slight downward trend. However, with post-holiday aluminum ingot destocking encountering obstacles, the current domestic aluminum ingot inventory has lost its YoY advantage, and its performance can no longer support the fundamentals of aluminum. Facing high aluminum prices, the supply-demand contradiction for aluminum billets in May increased again. The supply of aluminum billets is still expected to decrease, and it is anticipated that the short-term inventory trend of aluminum billets after the holiday will fluctuate but generally maintain a slight downward trend. Throughout the month, domestic aluminum billet inventory is expected to remain below 200,000 mt. Close attention should be paid to post-holiday supply-side fluctuations and downstream consumption performance.