The PMI of the domestic aluminum processing industry recorded 41.7% in May, slipping into contraction territory [SMM Downstream In-depth Analysis]

According to SMM data, the comprehensive PMI index for the domestic aluminum processing industry in May 2024 recorded 41.7%, slipping into contraction territory. The inhibitory effect of high aluminum prices on downstream demand has become apparent, with the production index recording 43.3% and the new orders index at 28%. Additionally, recent increases in overseas trade barriers have affected some companies' new export orders, with the new export orders index at 40.5%. Meanwhile, under high aluminum prices, the speed of end-user deliveries has slightly slowed, with the product inventory index at 54.5%. By sector, except for the aluminum wire and cable sector, all other sectors are in the contraction territory.

By specific product types:

Aluminium plate/sheet and strip: In May, the PMI for the aluminium plate/sheet and strip industry was 38.1%, down 21.1 points MoM. As the traditional peak season ended, May transitioned into the off-season. Together with the imposition of tax policies in some overseas markets, many companies reported a decline in new orders, leading to the PMI for May falling below 50%. In June, more segmented products will enter the traditional off-season. Some companies, after exhausting their orders on hand, will lower their operating rates due to a lack of new orders, and the PMI for the industry is expected to remain below 50%.

Aluminum foil: In May, the PMI for the aluminum foil industry was 40.7%, down 30.5 points MoM. This was mainly due to the end of the traditional peak season for products like packaging foil, leading to weaker new orders. Although products like battery foil and air-conditioning foil did not show a significant decline, they also did not see substantial growth, making it difficult to drive the overall industry rebound. Entering June, the demand for packaging foil, which accounts for the largest proportion of aluminum foil, is expected to continue weakening. Some small enterprises may reduce production, and the PMI for the industry is expected to remain below 50%.

Construction aluminium Extrusion: In May, the comprehensive PMI index for construction aluminium extrusion recorded 42.47%, falling below 50%. In May, aluminium prices surged to a high of 21,000 yuan/mt, leading to a decline in production and order volumes for construction aluminium extrusion companies across various regions. This month, the production and new orders indices fell below 50%, recording 42.91% and 32.35%, respectively. The raw material purchasing volumes index and raw material inventories index also declined, recording 43.28% and 48.90%, respectively. Additionally, due to weak end-user real estate demand, companies reduced or halted production due to insufficient orders, and some companies experienced a certain degree of personnel loss. This month, the employment index fell below 50%, recording 48.90%. Overall, with high aluminium prices and weak downstream demand, companies produced based on existing orders in early May, but insufficient demand in late May led to weaker production. Related companies reported a significant decrease in orders on hand for June, and the PMI for construction aluminium extrusion is expected to decline further in June.

Industrial aluminum extrusion: In May, the comprehensive PMI index for the industrial aluminum extrusion sector recorded 48.68%, falling below 50%. Looking at the sub-indices, the production index recorded 45.64%, and the new orders index was 49.22%. The new orders for industrial profiles were mainly supported by the rigid demand from the photovoltaic sector. According to the SMM survey, the production and new orders for automotive aluminum extrusion and other industrial extrusion showed a relatively weak trend MoM. Apart from rigid demand procurement, companies were cautious due to high prices, leading to a sharp reduction in orders. SMM has learned that companies are concerned about production and orders in June. Additionally, processing fees are severely competitive. Despite the relatively stable demand for photovoltaic aluminum extrusion, processing fees are continuously declining, resulting in low profits for companies, with some small and medium-sized enterprises producing at a loss. Overall, the inhibitory effect of high prices is evident, and it is expected that the PMI for the industrial extrusion sector will remain weak in June.

Aluminum wire and cable: In May, the domestic aluminum wire and cable industry PMI comprehensive index recorded 50.8%, down 5.7 percentage points MoM, but still above 50%. From the index perspective, the production index for aluminum wire and cable in May fell by 10.2 percentage points MoM to 44.05%. Leading companies maintained stable production, while small and medium-sized enterprises were severely impacted, with low operating rates. The order index rose by 9 percentage points MoM to 60.81%, with recent State Grid orders being concentrated and provincial grid orders rebounding. The new export orders index increased by 8.8 percentage points MoM to 48.38%, and the backlog orders index rose by 23.3 percentage points MoM to 64.77%. Although there were many new orders, end-users have not yet picked up the goods, and companies have a good number of orders on hand. Due to high aluminum prices, companies were cautious in procurement, focusing on rigid demand, with the procurement index falling by 15.2 percentage points MoM to 43.34%, and the raw material inventory index dropping by 21.3 percentage points MoM to 40%. Entering May, the industry's delivery volume remained high, but high aluminum prices suppressed production enthusiasm. With the release of previous industry orders, new orders in June may decline MoM, and it is expected that the PMI for the aluminum wire and cable industry will fall below 50% in June.

Primary aluminum alloy: In May, the PMI for primary aluminum alloy was 39.9%, down 10.1 points MoM. Compared to March and April, many companies reported reduced downstream demand in May, making sales more difficult. Some alloy plants slightly reduced production, but more maintained their original production pace under the pressure of increasing the alloying ratio. Entering June, demand is expected to further weaken, and new orders for alloy enterprises will also decline again, making it difficult for the industry PMI to return above 50%.

Secondary aluminum alloy: In May, the PMI of the secondary aluminum industry continued to stay below 50%, dropping by 2.9 percentage points MoM to 39.2%. The demand for secondary aluminum continued to weaken in May, with no improvement in end-user sectors such as automobiles. Both domestic and overseas orders for downstream die-casting factories decreased. Additionally, aluminum prices remained high in May, reaching above 21,000 yuan/mt, and the procurement enthusiasm of die-casting enterprises remained low. This led to secondary aluminum plants relying on long-term contracts or just-in-time needs to support orders, resulting in a continuous decline in shipments and a slight increase in finished product inventories. Together with the impact of the Labour Day holidays, the operating rate of the industry was correspondingly adjusted downward in May. In terms of costs, although the price difference between A00 aluminum and aluminium scrap widened, the overall cost of aluminum scrap rose with the price of A00 aluminum, even faster than the increase in the price of finished ingots, putting significant cost pressure on the industry, with inventory levels remaining low. Entering June, demand is unlikely to rebound during the traditional off-season, and the PMI of the secondary aluminum industry is expected to remain below 50%.

Brief Comment:

In May, aluminum prices continued to fluctuate at high levels, and the willingness of end-user sectors to place orders was poor. Some aluminum processing enterprises experienced losses on previous orders, leading to a decline in production enthusiasm, presenting a situation where the peak season was not as strong as expected. The NEVs and photovoltaic industries continued to reduce costs and increase efficiency, and showed less willingness to accept high aluminum prices. The industry saw a trend of replacing aluminum with steel or magnesium, resulting in insufficient orders for aluminum processing enterprises. The PMI of aluminum processing enterprises fell below 50% in May. Entering June, the sentiment of end-user sectors remained cautious, with limited order growth for aluminum processing enterprises. Additionally, the aluminum processing industry generally begins to transition to the off-season in late June, and overseas trade barriers caused significant disruptions. The increase in aluminum semis export orders was limited. Considering the industry orders and production schedules, SMM expects the PMI of the domestic aluminum processing industry to remain below 50% in June.