Continuous decline of 76,000 mt! Since September, domestic aluminum ingot destocking has met expectations [SMM Analysis]

In the first half of September, domestic aluminum ingots consecutively dropped below 800,000 mt and 750,000 mt, with the destocking speed slightly exceeding our previous expectations. Entering the second half of the month, the Mid-Autumn Festival became the first test for domestic aluminum ingot destocking during this year's September-October peak season. Due to the holiday impact, last week's domestic aluminum ingot outflows from warehouses were only 71,500 mt, showing a significant decrease MoM. However, during this period, domestic aluminum ingot inventory maintained its destocking pace. Although the speed slightly slowed, the overall performance was still satisfactory. Currently, domestic aluminum ingots have been in a nearly three-week destocking phase. As of September 24, 2024, SMM statistics show the total social inventory of aluminum ingots at 735,000 mt, with domestic circulating aluminum inventory at 609,000 mt, continuing to drop by 8,000 mt since the Mid-Autumn Festival (last Wednesday) and by 76,000 mt since the end of August. Although it is still 214,000 mt higher YoY, this number is gradually decreasing. The destocking performance of domestic aluminum ingots in September during the traditional peak season has basically met our expectations. SMM expects that due to the joint efforts of supply and demand during the September-October peak season and the early September destocking speed slightly exceeding expectations, there will be a significant destocking performance within the month. The continuation of destocking sentiment in the second half of the month also provides good support for recent aluminum prices. In the second half of September, domestic aluminum ingot inventory is expected to reach around 700,000-750,000 mt. In a relatively optimistic scenario, domestic aluminum ingot inventory may fall below 700,000 mt by the end of September. However, attention should be paid to the decline in outflows after aluminum prices rise and the short-term inventory accumulation risk due to concentrated arrivals during the National Day holiday.

Regionally, due to the impact of regional price spreads and differences in downstream demand performance, inventory performance in different regions continued to diverge in the second half of September. According to an SMM survey, due to the recent significant retreat in the Henan-Shanghai price spread, aluminum plants' shipping plans and rhythms have been adjusted. However, due to the lag in transportation, the increase in in-transit goods to central China is still arriving, with a small accumulation of 1,000 mt in Gongyi. Although the in-transit goods to east China have increased, and weekend arrivals in east China have also shown a significant increase, Wuxi's outflow performance since September has been relatively strong domestically, with a destocking of 12,000 mt being a standout, also driving the overall domestic destocking. In south China, recent arrivals have increased slightly MoM, while outflow performance has been mediocre, turning to a slight accumulation, with a small accumulation of 4,000 mt MoM from last Wednesday.

Regarding aluminum billet inventory, the current domestic aluminum billet inventory has maintained an overall downward trend for nearly half a year. With the overall dynamic control of primary aluminum billet supply pressure, significant YoY reduction in remelting billet supply, and further decline in the proportion of aluminum billet entering inventory, it has decreased from the annual high of nearly 300,000 mt after the New Year to the annual low of 110,000 mt by the end of August. For most of this year, the overall destocking performance of aluminum billets has been significantly stronger than that of aluminum ingots. However, in August, domestic primary aluminum billet production increased significantly, reaching a new high for the year. In August 2024 (31 days), the total national production of primary aluminum billets was 1.513 million mt, an increase of 86,000 mt MoM from July 2024 (31 days), with an increase of 6.0%; it increased by 157,000 mt YoY, with an increase of 11.6%. The domestic operating rate of primary aluminum billet producers in August was 58.2%, up 2.9% MoM.

The increase in domestic primary aluminum billet supply in August was more concentrated in the north, especially in north-west China. After the production reduction wave in northern billet plants ended in June and July, there was significant room for resumption in August, with MoM increases exceeding or approaching 10% in Qinghai, Ningxia, Henan, Xinjiang, Inner Mongolia, and Shaanxi. In south-west China, the resumption in Guangxi and Guizhou was basically completed in July, with MoM increases around 5% in Yunnan and Guizhou, while some billet plants in Guangxi saw slight reductions due to adverse weather. Entering September, the market had some expectations for consumption performance during the traditional peak season, but construction material operations still lacked sustained improvement momentum. Currently, aluminum billet processing fees remain under pressure, and considering the reduced number of operating days within the month, SMM expects that domestic primary aluminum billet production in September will remain largely stable.

With increased supply pressure and temporarily mediocre demand, outflow performance is weak. Therefore, the slight accumulation of domestic aluminum billets since September is foreseeable and logical. According to SMM statistics, as of September 23, domestic aluminum billet social inventory was 123,300 mt, up 2,000 mt since the Mid-Autumn Festival (last Wednesday), still 41,100 mt higher YoY, returning to a near three-year high. SMM expects that the aluminum billet market supply and demand are currently not fully matched, and caution is needed for the risk of continued accumulation in domestic aluminum billets. It is expected that in the second half of September, aluminum billet inventory will generally remain around 100,000-150,000 mt.

Summary: SMM believes that the current performance of the aluminum billet market is still far from ideal, with slightly insufficient confidence in consumption. The aluminum billet supply, social inventory, and processing fees are all anxiously awaiting the direction indicated by the September-October peak season. The downstream consumption performance during the traditional peak season will be crucial. Among them, industrial extrusion has already provided support but gaps remain, and whether the construction material industry before and after the National Day can see a wave of pre-holiday restocking to boost the aluminum billet market and inject confidence may determine the overall direction of the aluminum billet industry in the fourth quarter.