Only 54,000 mt 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 China's aluminum ingot social inventory was 684,000 mt, with a domestic circulating inventory of 558,000 mt, an increase of only 26,000 mt from before the holiday (last Monday), 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 accumulation of 28,000 mt in domestic aluminum billet inventory, only 54,000 mt of aluminum products accumulated after the National Day holiday.

Data shows that during the "September-October peak season," the unexpected performance of domestic aluminum ingot inventory provided strong support for post-holiday aluminum prices. 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. Arrival volume gap: Transportation issues in Xinjiang are the main reason for the post-holiday accumulation being significantly below expectations. After October each year, Xinjiang often faces insufficient transportation capacity, with shipments mainly relying on small trains. According to the SMM survey, with the completion of railway transport tasks and increased coal transport, Xinjiang's capacity is slightly insufficient, causing shipping delays and platform congestion. This situation has a relatively large impact compared to previous years, and it is unclear when it will improve. Some aluminum plants are considering road transport as an alternative. Based on daily production estimates, SMM estimates the current backlog exceeds 50,000 mt, with over 20,000 mt of aluminum ingots affected.

2. Increase in the proportion of aluminum liquid: Casting ingot production decreased, and the 7-day holiday was shorter than last year's double holiday, reducing aluminum ingot supply pressure since September. With the transition between peak and off-peak seasons and the resumption of production after maintenance in downstream billet plants, the proportion of aluminum liquid increased by 2.3 percentage points MoM and 0.3 percentage points YoY to about 73.06% in August. 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 "September-October peak season" approaching, positive news from downstream processing sectors and a slight demand recovery may boost the operating rate of intermediate products like aluminum billets. The aluminum liquid proportion is expected to adjust to about 74% in September, with casting ingot production likely to decrease further. Qinghai is a typical example of recent easing in aluminum ingot supply pressure.

3. Demand side: Continued strong performance, closed import window, and reduced market supply options led to many aluminum products being directly delivered to downstream via road transport during the National Day holiday. During the "September-October peak season," the aluminum plate/sheet, strip and foil, and industrial extrusion sectors emerged from the off-season gloom, with partial demand recovery driving spot premiums and inventory consumption. The recovery in some downstream sectors in September effectively led to destocking in Gongyi and Wuxi, with stable to slightly declining inventory trends in South China. The significant recovery in domestic aluminum ingot outflows from warehouses before the National Day holiday also reflects strong pre-holiday restocking demand. According to SMM statistics, aluminum ingot outflows from warehouses reached 142,300 mt in the week before the National Day holiday, a new high for the year.

Regionally, after a 7-day holiday, major consumption areas theoretically should show accumulation, such as 12,000 mt in Gongyi and 14,000 mt in Foshan. However, due to the aforementioned factors, no large-scale concentrated arrivals were observed post-holiday, with accumulation performing normally and below previous expectations. 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 used the holiday to conduct sea freight transfers between the two regions, but these are still in transit and limited, mainly direct deliveries to local downstream, with limited impact on social inventory. SMM is closely monitoring the latest changes in inter-regional transfer volumes.

After the National Day holiday, domestic aluminum billet inventory accumulation met pre-holiday expectations and even exceeded aluminum ingot accumulation. With increased supply pressure and temporarily mediocre demand, September's overall aluminum billet outflows were weak, leading to a slight accumulation. Due to longer holidays for extrusion enterprises this year, SMM statistics show that as of October 8, domestic aluminum billet social inventory was 137,300 mt, an accumulation of 28,300 mt from before the holiday (last Monday), and 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 side slightly increased, with reduced production cut expectations in Yunnan and limited room for aluminum liquid proportion increase in October. During the 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 analysis, in-transit volumes post-holiday are temporarily significant, and increased arrivals and rising aluminum prices may extend the social inventory accumulation trend. In the short term, aluminum social inventory is expected to remain stable with slight increases. However, throughout the month, under the "October peak season" background, domestic aluminum ingot inventory is expected to continue declining. SMM forecasts domestic aluminum ingot inventory to run around 650,000-750,000 mt in the first half of October, with a potential decrease to around 600,000 mt by the end of October in an optimistic scenario. Whether a rapid return to destocking can be achieved depends on downstream consumption and smooth transportation from major supply sources.