SMM, Oct 29: Entering the end of the peak season, the good performance of domestic aluminum ingot inventory continues to provide strong support for aluminum prices in late October. As of October 28, 2024, SMM statistics show that the domestic aluminum ingot social inventory stands at 625,000 mt, with a domestic circulating aluminum inventory of 499,000 mt, down 5,000 mt compared to last Thursday, and down 33,000 mt from the end of September. On YoY terms, domestic aluminum ingot inventory has decreased by 28,000 mt from last year's historical level of 653,000 mt, and is close to returning to the lowest level in the past five years. Regarding outflows, last week's outflows increased by 5,100 mt to 122,100 mt WoW, with Foshan's aluminum ingot outflows surging by 11,900 mt to 40,700 mt, while arrivals sharply decreased by about 5,000 mt, leading to a destocking of 11,000 mt in Foshan after the weekend, effectively driving recent domestic aluminum ingot outflows and destocking.
So, why did aluminum ingot outflows from South China rise significantly in the past week? SMM summarizes the following two reasons for your reference:
1. Regional transfers from South China to East China are the main reason. In the past week, downstream factories and traders in East China actively inquired about South China sources, especially some low-iron sources from Yunnan, which were more sought-after, mainly shipped directly from South China to East China. Considering regional price spread and transportation distance factors, recent shipments from aluminum plants to East China have been limited, and the poor transportation of Xinjiang sources has further tightened aluminum ingot supplies in East China, especially low-iron sources.
2. Downstream restocking in anticipation of price increases, and active shipments from holders. As the long-term contract settlement date approaches, the monthly average price of long-term contracts is profitable, prompting holders to actively ship. According to customer feedback, some downstream orders are still good, and after the previous price surge and correction, everyone is optimistic about the future market, taking advantage of low prices to purchase and restock in large quantities. With restocking demand and high downstream bullish sentiment, market transactions are active.
Regarding the insufficient transportation capacity in Xinjiang, according to the latest feedback from some warehouses, after a batch of goods was concentratedly shipped from Xinjiang to the Gongyi area at the beginning of last week, the backlog situation slightly eased. This batch of concentrated arrivals in transit also led to an inventory buildup of 15,000 mt in Gongyi after the weekend. However, in the mid-to-late last week, Xinjiang's railway loading encountered difficulties again, with the railway bureau strictly controlling car batches, and due to the limited price spread between Henan and Shanghai, arrivals in East China remained low after the weekend, while outflows remained good, leading to a destocking of 11,000 mt in Wuxi. SMM expects that currently, aluminum products in Xinjiang are still mainly backlogged at the station, with a backlog period of about half a month to a month. The transportation difficulties in Xinjiang are expected to fully recover by mid-to-late November, so domestic aluminum ingot inventory is expected to remain stable with a slight decrease in early November. SMM will closely monitor the latest developments in the transportation of aluminum products from Xinjiang and the adjustment of the proportion of aluminum liquid on the supply side.
After the weekend, domestic aluminum billet inventory showed slight fluctuations. According to SMM statistics, as of October 28, domestic aluminum billet social inventory was 110,900 mt, up 1,100 mt compared to last Thursday. Regarding outflows, last week's outflows decreased by 6,600 mt to 40,300 mt WoW. Therefore, although the inventory buildup of domestic aluminum billets during the National Day holiday has been mostly consumed, the destocking did not continue, and it is still 3,200 mt higher than last year's 107,700 mt, returning to the high level of the same period in the past three years. SMM expects that with the easing of domestic aluminum billet inventory pressure since the second half of October, domestic aluminum billet inventory is likely to remain largely stable within the range of 100,000-150,000 mt during the month. However, it is necessary to pay attention to the risk of inventory buildup after the increase in arrivals. Whether the inventory rhythm will change in the future still needs to closely monitor downstream consumption under high aluminum prices and the smoothness of shipments from mainstream sources.
On the domestic supply side, according to SMM's monthly survey data, the production of primary aluminum billets in September continued to hit a new high for the year and historically. In September 2024 (30 days), the total production of primary aluminum billets nationwide was 1.528 million mt, an increase of 15,000 mt from August 2024 (31 days), with a growth rate of 0.98%. Notably, the increase in the supply of primary aluminum billets in September was mainly contributed by the Xinjiang region, with an increase of 28,000 mt, a growth rate of over 15%. In September, Xinjiang's primary aluminum billet production was 212,000 mt, accounting for about 13.8% of the national total. The simultaneous resumption and new production of billet plants in Xinjiang in September drove the overall supply of primary aluminum billets to increase again. Overall, entering the end of the peak season in October, and with the impact of environmental protection policies in north China affecting local enterprises' production, coupled with aluminum prices fluctuating at highs, some end-use sectors are adopting a wait-and-see approach, which may negatively impact aluminum billet operating rates and demand. SMM believes that there is an expectation of a slight drop in domestic primary aluminum billet production in October. However, in the past week, with the reduction in the supply side of aluminum billets, the poor transportation in Xinjiang, and the continuous rapid decline in previous inventories, the supply-demand balance in the aluminum billet market has been good recently. Despite the base price continuously rising and surpassing the 21,000 mt mark, the strong bullish sentiment in the market supports the current aluminum billet processing fees to remain relatively firm.
In summary, the domestic aluminum market supply side has slightly increased, the expectations for production cuts in Yunnan have largely fallen through, and entering the end of the peak season in October, the proportion of aluminum liquid in the domestic supply may adjust. Demand side, during the domestic holiday period, most large and medium-sized downstream processing enterprises maintained normal operations, and the weekly operating rate of the downstream aluminum processing industry in late October remained largely stable. Additionally, the demand in new energy and PV sectors continues to perform well, and future aluminum market consumption still holds certain expectations. In the short term, with a favorable macro front and stable fundamentals, the good inventory performance after the holiday is expected to drive the aluminum futures and spot market to continue strengthening. However, it is necessary to closely monitor changes in in-transit volumes and dynamic adjustments in casting ingot volumes. According to SMM's survey and analysis, it is expected that after transportation returns to normal, aluminum social inventory may increase, but the pressure brought by this in the near term is limited. Looking at the whole month, under the traditional peak season background of "October peak season," domestic aluminum ingot inventory is still expected to maintain a downward trend. SMM expects that in the second half of October, domestic aluminum ingot inventory will fluctuate around 600,000-700,000 mt, and in an optimistic scenario, domestic aluminum ingot inventory may decrease to around 600,000 mt by the end of October.
