The decline in aluminum prices makes it difficult to drive downstream demand. In July, the domestic aluminum processing sector PMI remained below 50% [SMM Downstream In-depth Analysis]

According to SMM data, the comprehensive PMI index of the domestic aluminum processing industry recorded 41.80% in July 2024, up 0.2 percentage points MoM, remaining below 50% for three consecutive months. By sector, the PMI of mainstream processing sectors such as domestic aluminium extrusion and plate/sheet, strip and foil were all below 50% in July, while the aluminium wire and cable sector performed well, with a PMI of 54.9%. In terms of specific indicators, domestic downstream demand entered the off-season in July, and aluminum prices saw a significant pullback. As of July 30, spot aluminum prices had fallen below 19,000 yuan/mt. However, the weak demand for construction aluminum, together with the seasonal decline in demand for NEVs, led to a poor production index in July, which recorded 30.3%. In August, the demand for photovoltaics, NEVs, and the State Grid slightly improved, driving the new orders index for industrial aluminium extrusion and aluminium wire and cable above 50% in July. However, the overall new orders index for the aluminum processing industry still showed weak growth, unable to offset the overall decline in end-user demand, with the new orders index for the aluminum processing industry recording 38.7% in July.

By product type:

Aluminium plate/sheet and strip: In July, the PMI for the aluminium plate/sheet and strip industry was 39.2%, up 5.7 points MoM. Although aluminium prices fell significantly in July, this had limited impact on downstream purchasing willingness, and many companies saw a further decline in new orders MoM. Some aluminium plate/sheet and strip producers also reduced their operating rates again, dragging the industry's PMI below 50%. August is still in the off-season, and most companies are expected to see weak rebounds in production and sales, with the industry's PMI likely to remain below 50%.

Aluminum foil: In July, the PMI for the aluminum foil industry was 30.9%, down 4.0 points MoM. Demand for various aluminum foil products continued to weaken in July, leading more companies to reduce their operating rates. By product, demand for air-conditioning foil and food packaging foil declined significantly, while products like battery foil and brazing foil remained relatively stable but showed weak growth, making it difficult to improve the overall industry. In the short term, it is unlikely that aluminum foil producers will see a significant rebound in orders and production, and the industry's PMI is expected to remain below 50%.

Construction extrusion: In July, the comprehensive PMI for construction extrusion sector recorded 45.60%, still below 50%. July marked the beginning of the traditional off-season, together with a significant decline in real estate demand this year. SMM learned that companies felt the off-season demand decline more rapidly and significantly this year, with the production index recording 20.20% this month. Additionally, in late July, aluminium prices sharply corrected to around 19,000, which did stimulate some orders to be placed, with the new orders index recording 60.49%. However, overall, the small number of new orders could not offset the decline of the off-season, and some companies reported a sharp drop in export orders to the US and Australia. Therefore, companies appropriately reduced raw material purchases based on orders, with the raw material purchasing volumes index recording 23.33% this month. In summary, the traditional off-season atmosphere is strong, with overall production and orders in the construction profiles industry decreasing. The PMI for construction extrusion sector is expected to remain below 50% in August.

Industrial Extrusion: In July, the comprehensive PMI index for the industrial aluminium extrusion sector recorded 49.79%, remaining below the threshold. Breaking down the sub-indices, the production index recorded 42.20% due to the off-season, but the new orders index reached 55.80%. This was mainly because PV module production slightly increased MoM in August, and aluminium prices retreated in late July, prompting some OEMs to increase their purchasing volumes, which slightly boosted the operating rates of automotive extrusion plants in July and August. According to the SMM survey, due to the high barriers in the automotive extrusion sector, companies that received new orders often engaged in customized cooperation with OEMs, such as developing alloy ratios and higher-performance products. Overall, the industrial extrusion sector showed a slight rebound trend, and the PMI is expected to return above the threshold in August.

Aluminum Wire and Cable: In July, the comprehensive PMI index for the domestic aluminum wire and cable industry recorded 54.9%, above the threshold, indicating a relatively positive overall performance. The base price of aluminum continued to decline in July, and end-users' orders on hand rebounded, significantly increasing their willingness to operate, which drove the industry's operating rate to continue rising. Looking at different indices, although the production index for aluminum wire and cable fell 3.7 percentage points MoM to 54.7%, the industry's operating rate was still in an upward phase compared to June. The order index rose 21.1% MoM to 62.17%, with provincial grid orders gradually being awarded, and backlogged orders increased 19.8% MoM to 67.5%, indicating ample orders on hand for companies. Additionally, the new export orders index rose 10.4 percentage points MoM to 55.56%, suggesting that aluminum wire exports in July might see some recovery. In terms of company operations, the finished product inventories index was 47.8%, showing a slight decline in inventories; the purchasing volumes index was 56.92%, indicating that purchasing demand continued to gradually release; and the raw material inventories index was 56.92%, reflecting a noticeable rebound in companies' willingness to receive goods due to the recovery in order profits. Entering August, companies reported that the State Grid's delivery remains tight, significantly increasing their production enthusiasm. Based on companies' orders on hand and scheduled production expectations, the aluminum wire PMI is expected to hover around the threshold in August, with some potential for a decline in September-October due to the impact of hot weather on grid construction.

Primary aluminum alloy: In July, the PMI for primary aluminum alloy was 44.1%, up 1.4 points MoM. The market trend for primary aluminum alloy in July was largely consistent with previous expectations. During the traditional off-season, order volumes continued to decrease, and some producers further reduced their operating rates due to insufficient orders. Although a few producers increased production to consume more aluminum liquid, it was difficult to recover the overall industry operating rate. Both August and July are traditional off-seasons for the industry, and most producers expect that various data will not change significantly, with the industry PMI expected to hover around the threshold.

Secondary aluminum alloy: In July, the PMI for the secondary aluminum industry remained below the threshold, decreasing by 4.9 points MoM to 39.5%. From the production perspective, the operating rates of secondary aluminum plants generally declined in July due to multiple constraints. First, it was still the off-season for consumption, resulting in insufficient new orders. Second, the supply of aluminum scrap was tight, together with the continuous decline in aluminum prices, traders' prices lagged behind, and their willingness to sell was low, making it difficult for secondary aluminum producers to procure aluminum scrap, and production cost pressures increased sharply. Third, policy disturbances, besides the "reverse invoicing," the market was concerned about the impact of the Fair Competition Review Regulations on VAT rebates starting from August 1, leading to production cuts or stoppages in regions like Jiangxi and Anhui. Fourth, environmental protection inspections in some areas reduced production. In terms of inventory, due to reduced production and high raw material costs, both finished product inventories and raw material inventories at secondary aluminum alloy plants decreased. Entering August, downstream regions like southwest and south China are expected to enter high-temperature holidays, potentially weakening demand further. Additionally, the new policy is about to be implemented, which may impact downstream procurement and production, with the PMI expected to remain below the threshold.

Brief Comment: At the end of July, aluminum prices fell below the 19,000 yuan/mt. Some sectors saw a slight improvement in new orders, but the volume was small and could not overshadow the off-season atmosphere in the industry. The PMI for processing enterprises remained below the threshold. August is still a traditional off-season, and there is no significant recovery trend in demand for photovoltaics and NEVs. Although overseas orders can still maintain a growth trend, domestic demand remains weak. Considering the industry orders and scheduled production, SMM expects the PMI for the domestic aluminum processing industry to remain below 50% in August.