The destocking of aluminum billets exceeded expectations

In the past half month, the destocking of domestic aluminium billets slightly exceeded expectations. As of June 27, the social inventory of domestic aluminium billets was 143,500 mt, down 8,300 mt WoW, falling below the 150,000 mt and nearly closing the gap with the same period last year. Pick-up from warehouses rose by 3,600 mt WoW to 46,000 mt. The destocking of aluminium billets was due to reduced arrivals. Based on downstream operating rates, conversion margins, and market feedback, the overall domestic market remained weak during the off-season, affecting the shipment willingness of billet factories. This was particularly evident as the Guangdong-Shanghai price spread widened to over 200 yuan/mt, leading to a continuous decrease in arrivals in south China. The inventory performance in the south China market stood out, mainly driven by construction extrusion. Decline in aluminum prices also stimulated local downstream demand, but the sustainability remains to be seen. The inventory in other regions remained mediocre, with varying degrees of accumulation, indicating that the boom for aluminum billets market has yet to come.

However, SMM believes that destocking and improved pick-up from warehouses in the short term is still a positive signal for the market. Thanks to the weak aluminium prices and good destocking performance, conversion margins in south China continued to rise last week. The conversion margins of φ120 billets in Foshan rose to 350 yuan/mt, up 100 yuan/mt WoW. In contrast, other two regions were reluctant to raise prices, with conversion margins of φ120 billets in Nanchang and Wuxi reported at 130 and 200 yuan/mt, respectively, up only 40 and 0 yuan/mt.