Destocking of aluminum billets continued, with processing fees steadily rising, but downstream demand still lacks growth

Regarding aluminum billet inventory, despite the off-season, the decline in aluminum prices last week did not significantly improve pick-up from warehouses. At the same time, the concentrated price support for conversion margins kept downstream buyers bearish. Last week, aluminum billet pick-up from warehouses saw little change, down 1,300 mt WoW to 41,100 mt. However, with the further decline in aluminum prices this week, an SMM survey found that recent downstream purchases increased, mainly through direct truck transportation, leading to a decrease in the proportion of inflows in south China. Mid-week, south China inventory fell by 2,500 mt. Therefore, this week saw comprehensive destocking across various regions. According to the latest SMM statistics, as of July 25, domestic aluminum billet social inventory stood at 131,200 mt, down 9,700 mt WoW. Although domestic aluminum billet inventory remains at a three-year high for the same period, still 56,100 mt higher YoY. The significant decline in aluminum price since late July eased downstream purchasing concerns, leading to a rebound in transactions and injecting some momentum into domestic aluminum billet destocking. It is expected that aluminum billet inventory will remain between 120,000-150,000 mt in July.

With aluminum prices declining, the Guangdong-Shanghai price spread narrowing further, and inventory conditions improving, especially with the rebound in downstream purchasing willingness, conversion margins across various regions rose steadily this week. As of July 25, the conversion margins of φ120 billets in Nanchang rose to 460 yuan/mt, up 110 yuan/mt WoW. In Wuxi, the margins increased slightly by 30 yuan/mt to 380 yuan/mt. According to SMM, low-price aluminum billet sources have been scarce in Nanchang recently, with sellers mainly holding firm on prices, making the conversion margins the highest among the three regions. However, downstream buyers are mostly bearish, leading to unsatisfactory transactions. Currently, the conversion margins of φ120 billets in Foshan are reported at 400 yuan/mt, up 40 yuan/mt. SMM expects that the conversion margins of aluminum billets in various regions will go up throughout the month.