Operating rates declined during the off-season, and aluminium billet conversion margins faced downward pressure after the holiday

After the holiday, aluminum billet inventories first increased and then decreased. As of June 13, domestic aluminum billet social inventory was 162,800 mt, down 3,600 mt compared to June 6, but up 21,300 mt YoY, still at a high level for the same period in nearly four years. At the beginning of June, the inventory decline was challenging, and pick-up from warehouses also showed a slight decrease. In the week, aluminum billet pick-up from warehouses decreased by 6,700 mt to 45,200 mt, dropping to the lowest level in nearly four years. With a significant pullback in aluminum prices, there were no obvious signs of improvement in pick-up from warehouses, and aluminum billet conversion margins also faced downward pressure, which is a negative signal. As inventory has been declining for a long period, SMM believes that domestic aluminum billet stocks will hardly fall due to the expected increase in supply and weak rigid downstream demand. Inventory decline is expected to be challenging, and domestic aluminum billet inventory in June is likely to hover around 150,000-200,000 mt.

On the supply, in May 2024 (31 days), the total output of aluminum billets nationwide was 1.457 million mt, down 15,000 mt or 1% compared to April 2024 (30 days); up 40,000 mt or 2.8% YoY. Domestic aluminum billet output has declined for the second consecutive month. In May, the output in the two major producing provinces Shandong and Inner Mongolia stabilized, while in south-west China, especially in Guangxi and Guizhou, the reduction or halt in production was most intensive. In Tianyang, Guangxi, most aluminum billet producers had a shutdown of more than half a month. Overall, in June, as Guangxi fully resumed production, based on the current recovery and working days in the month, SMM predicts that domestic aluminum billet output in June is likely to stabilize.

In the week, the operating rate of leading domestic aluminum extrusion companies dropped by 2.5 percentage points to 54%. In June, the downstream aluminum sector gradually entered the traditional off-season, and high aluminum prices further accelerated the decline in demand. In the sub-sectors, the construction extrusion sectors showed a trend of transitioning to the off-season, with company orders mainly from existing orders and regular customers, and new orders were weak. The effect of the favorable macro front still needs to be observed. In the industrial extrusion sector, the scheduled production of domestic PV module manufacturers in June is expected to decrease by 6 percentage points MoM, resulting in a decline in the purchase of aluminum extrusion frames, which in turn significantly lowered the operating rates. Some automotive extrusion plants also saw a decrease in orders, mainly because end-user auto makers prioritized digesting inventory and conducting maintenance, leading to pullback in demand. On the whole, the end-user market is gradually transitioning to the off-season, and with aluminum prices remaining high, the operating rate is likely to drop.