After the turning point of domestic aluminum ingot destocking became clear last week, the performance of domestic aluminum ingot inventory at the beginning of this week was disappointing. The continuous decline in domestic aluminum inventory came to a halt, temporarily failing to cross the 800,000 mt mark. According to SMM statistics, as of August 26, 2024, the total social inventory of aluminum ingots was 807,000 mt, with domestic circulating aluminum inventory at 681,000 mt, up 4,000 mt WoW and 317,000 mt YoY. In terms of outflows, last week's outflows from warehouses decreased by 12,700 mt to 103,700 mt. Last week, aluminum prices accelerated their rebound, with an increase of nearly 500 yuan/mt, aggressively aiming to reclaim the 20,000 yuan/mt mark, which suppressed domestic aluminum ingot outflow performance. Additionally, some "black swan" events in the spot trading market last week made market trading sentiment more cautious, and it is expected that the market will need some time to digest this.
By region, the inventory performance of the three major mainstream consumption areas showed significant divergence this week. Wuxi, which had seen inventory accumulation for more than a month since the end of June, with an increase of nearly 100,000 mt, showed signs of reversal last week and continued to destock by 7,000 mt to 330,000 mt this week. Affected by some unexpected events, Gongyi's outflow performance declined last week, making destocking difficult to sustain, with inventory remaining stable WoW. Notably, the "black swan" event in the Foshan spot market in the latter part of last week deeply impacted the previously active trading atmosphere, with outflows decreasing by nearly 10,000 mt WoW. Simultaneously, due to the rebound in aluminum prices, shipments from aluminum smelters in neighboring provinces were more active, increasing by 5,000 mt to 11,100 mt WoW, leading to concentrated arrivals in Foshan over the weekend. Consequently, Foshan's inventory increased by 5,000 mt WoW.
Overall, since H2, the casting ingot volume from provinces such as Yunnan, Xinjiang, Inner Mongolia, and Qinghai has been relatively high YoY, with a continuously loose supply side. However, approaching the traditional peak season for aluminum processing, the operating rate of intermediate products like aluminum billets has rebounded, while the casting ingot volume in August is expected to decline. Additionally, with the approach of the "September-October peak season," the recent rebound in aluminum prices has reignited market bullish sentiment, and the consumption side has shown signs of recovery. Due to multiple influencing factors, the short-term difficulty of domestic aluminum ingot destocking may increase, with inventory temporarily remaining above 800,000 mt. However, SMM expects that the turning point of domestic aluminum ingot inventory in the second half of August has been basically confirmed, with inventory expected to fluctuate around 750,000-850,000 mt, and domestic aluminum ingot inventory is still expected to fall below 800,000 mt by the end of August.
Regarding aluminum billet inventory, SMM believes that since H2, due to tepid downstream demand and factors such as policy changes, high scrap costs, limited aluminum scrap supply, and safety inspections in some areas of east China, the reduction in remelting billet supply has been one of the important reasons for the destocking of primary aluminum billets. Although the pressure on the domestic aluminum billet supply side has not significantly increased, it is worth noting that Foshan also saw concentrated arrivals of aluminum billets over the weekend, increasing by 4,400 mt WoW, more than doubling. However, due to the overall satisfactory outflow performance of aluminum billets last week, Foshan's aluminum billet inventory remained stable. According to SMM statistics, as of August 26, domestic aluminum billet maintained a good destocking trend, with social inventory at 110,000 mt, down 700 mt WoW, and up 39,600 mt YoY, but still slightly lower than the same period in 2022. Last week's aluminum billet outflows increased by 1,200 mt WoW to 41,200 mt. SMM expects that subsequent domestic aluminum billet inventory will mainly remain stable with slight declines, with overall aluminum billet inventory expected to remain around 100,000-150,000 mt in August. However, due to the recent significant rebound in aluminum prices, the conversion margins for φ120 aluminum billets in the three regions fell below 300 yuan/mt this week, with Foshan, Wuxi, and Nanchang reporting 190, 210, and 230 yuan/mt, respectively, showing a significant decline WoW.
On the aluminum billet demand side, aluminum prices have quickly risen over the past week, with downstream operating rates remaining stable, and companies mainly producing based on orders on hand. The operating rate of leading companies remained at 51.20% over the past week. By segment, construction extrusion orders still showed an improving trend, but market expectations for future demand remained mostly pessimistic. Industrial extrusion is transitioning between off-season and peak season, with photovoltaic and automotive sectors gradually increasing procurement, and companies normally receiving and producing orders. Photovoltaic processing fees stayed stable. According to an SMM survey, the processing fees for photovoltaic frames are too low, leading to occasional losses for companies, and some companies attempt to raise prices but still face resistance. Overall, leading aluminum extrusion companies currently operate steadily, and SMM will continue to monitor the impact of rising aluminum prices.
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