Only 54,000 mt of inventory accumulated after the National Day holiday! Why is this year's holiday aluminum inventory accumulation the lowest in nearly five years? [SMM Analysis]

On October 8, 2024, SMM reported that the domestic aluminum ingot social inventory was 684,000 mt, with a domestic circulating aluminum inventory of 558,000 mt, an increase of only 26,000 mt compared to pre-holiday (last Monday) levels, significantly below pre-holiday expectations. On YoY terms, domestic aluminum ingot inventory was only 102,000 mt higher than the post-holiday historical level of 582,000 mt last year, with a cumulative destocking of 127,000 mt since the end of August. Adding the holiday inventory accumulation of 28,000 mt in domestic aluminum billet inventory, the post-National Day holiday domestic aluminum product inventory accumulated only 54,000 mt.

Data shows that during the traditional "September-October peak season," the domestic aluminum ingot inventory's performance exceeded expectations, providing strong support for post-holiday aluminum price performance. Overall, why is this year's holiday aluminum product social inventory accumulation the lowest in nearly five years? SMM believes there are three main reasons:

1. A gap in arrivals, with transportation issues in Xinjiang being the main reason for the post-holiday inventory accumulation significantly below expectations. After October each year, Xinjiang often experiences insufficient transportation capacity, with shipments mainly relying on small trains, otherwise difficult to approve. According to the SMM survey, this year, with the completion of railway transportation tasks and the recent increase in coal transportation, Xinjiang's transportation capacity is slightly insufficient, leading to transportation issues and platform congestion, which has a relatively large impact compared to previous years. It is currently unknown when this situation will improve, and some aluminum plants are reportedly considering road transport as an alternative. Based on daily production estimates, SMM estimates that the current backlog has exceeded 50,000 mt, with over 20,000 mt of aluminum ingots affected.

2. The proportion of aluminum liquid increased, casting ingot production decreased, and the 7-day holiday was shorter compared to last year's double holiday, reducing the pressure on aluminum ingot supply since September. The transition between peak and off-peak seasons, combined with the resumption of production after maintenance at downstream billet plants, led to a 2.3 percentage point MoM increase in the aluminum liquid proportion in August, with a slight YoY increase of 0.3 percentage points to around 73.06%. According to SMM's aluminum liquid proportion data, domestic aluminum casting ingot production in August fell below 1 million mt to around 993,600 mt, up 0.83% YoY but down 7.7% MoM. With the traditional "September-October peak season" approaching, favorable news from downstream processing sectors and a slight improvement in demand may drive the operating rate of intermediate products like aluminum billets to rise again. It is expected that the aluminum liquid proportion in September will adjust to around 74%, with casting ingot production likely to decrease further. The recent "relaxation" of aluminum ingot supply pressure is most typical in Qinghai.

3. The demand side continues to perform well, with the import window remaining closed, reducing available market sources. During the National Day holiday, many aluminum products continued to be directly delivered to downstream via road transport. In the traditional "September-October peak season," the aluminum plate/sheet, strip and foil, and industrial extrusion sectors were the first to emerge from the off-season gloom. The partial recovery on the demand side drove spot premiums and inventory consumption. The warming of some downstream sectors in September effectively led to the first destocking in Gongyi and Wuxi, with a stable to slightly declining trend in South China inventory. The significant recovery in domestic aluminum ingot outflows from warehouses before the National Day holiday also reflects this, with SMM reporting a pre-holiday week aluminum ingot outflow of 142,300 mt, a new high for the year, indicating strong pre-holiday market restocking demand.

Regionally, theoretically, after a 7-day holiday, major consumption areas would typically show inventory accumulation, such as Gongyi with 12,000 mt and Foshan with 14,000 mt. However, due to the aforementioned factors, no large-scale concentrated arrivals were observed post-holiday, with normal and lower-than-expected inventory accumulation. Notably, East China saw an unexpected destocking of 1,000 mt post-holiday, indicating no impact from inter-regional transfers and regular holiday shipments. According to the SMM survey, the Guangdong-Shanghai price spread has widened to around 200 yuan/mt, opening up space for inter-regional transfers. Some enterprises have taken advantage of the holiday to conduct sea freight transfers between the two regions, but these are still in transit and limited, mainly directly delivered to local downstream, with limited impact on social inventory. SMM is closely monitoring the latest changes in transfer volumes between the two regions.

After the National Day holiday, domestic aluminum billet inventory accumulation met pre-holiday expectations, even exceeding aluminum ingot accumulation. With increased supply-side pressure and temporarily mediocre demand, September's overall aluminum billet outflow performance was weak, leading to a slight inventory accumulation. Due to longer holidays for extrusion enterprises this year, SMM reported that as of October 8, domestic aluminum billet social inventory was 137,300 mt, with an accumulation of 28,300 mt compared to pre-holiday (last Monday) levels, still 33,600 mt higher YoY, remaining at a three-year high. SMM expects domestic aluminum billet inventory to maintain a slight accumulation pace in the first half of October, running around 150,000-200,000 mt.

Overall, the domestic aluminum market supply is slightly rising, with reduced production cut expectations in Yunnan and limited room for aluminum liquid proportion increase in October. On the demand side, during the domestic holiday, most medium and large downstream processing enterprises maintained normal operations, with post-holiday demand in sectors like new energy and photovoltaics remaining strong, boosting future aluminum market consumption expectations. In the short term, with a favorable macro atmosphere and stable fundamentals, the unexpected post-holiday inventory performance is expected to support a continued strengthening trend in the aluminum spot market. However, close attention is needed on changes in in-transit volumes and dynamic adjustments in casting ingot production. According to SMM's survey analysis, the in-transit volume post-holiday is temporarily significant, and increased arrivals and rising aluminum prices may lead to continued social inventory accumulation. In the short term, aluminum social inventory is expected to remain stable with slight increases. However, throughout the month, under the traditional "October peak season" background, domestic aluminum ingot inventory is still expected to maintain a downward trend. SMM predicts that in the first half of October, domestic aluminum ingot inventory will run around 650,000-750,000 mt, with an optimistic scenario of falling to around 600,000 mt by the end of October. Whether a rapid return to destocking can be achieved depends on downstream consumption and the smoothness of shipments from major sources.