Returning to the Low Levels of the Past Five Years! Domestic Aluminum Ingot Inventory Falls Below 600,000 mt [SMM Analysis]

With the inventory falling below the 600,000 mt mark, the strong destocking performance of domestic aluminum ingots has marked a perfect end to this year's "September-October peak season." As of October 31, 2024, SMM statistics show that the domestic aluminum ingot social inventory was 597,000 mt, and the domestic circulating aluminum inventory was 471,000 mt, down 28,000 mt compared to Monday and down 33,000 mt compared to last Thursday, with a decrease of 61,000 mt from the end of September. Notably, since H2, domestic aluminum ingot inventory has returned to the low levels of the past five years and is currently 56,000 mt lower YoY.

SMM believes that the main reason for the significant mid-week destocking is the renewed significant obstruction of shipments from Xinjiang since mid-last week. Despite the reduced regional transfer at the end of the peak season, the outflows from warehouses in Foshan have consecutively hit new highs for the year over the past two weeks. The transfer activities have partially continued, and the trading in the three major domestic aluminum ingot consumption areas has remained good, stabilizing the outflows from warehouses and aiding inventory consumption. SMM expects that currently, aluminum products in Xinjiang are still mainly piled up at the stations, with a backlog period of about half a month to a month. The rail transport situation has not improved, with only a small amount of road transport still ongoing. The shipment difficulties in Xinjiang are expected to fully normalize by mid-to-late November at the earliest. Therefore, domestic aluminum ingot inventory is expected to maintain a stable to slightly decreasing trend 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.

At the end of the peak season, domestic aluminum billet inventory showed slight fluctuations. According to SMM statistics, as of October 31, domestic aluminum billet social inventory was 114,200 mt, with an inventory buildup of 4,400 mt compared to last Thursday and 3,300 mt compared to Monday. On YoY terms, it is 6,500 mt higher than the same period last year. Therefore, although the inventory buildup of domestic aluminum billets during the National Day holiday has been largely consumed, the destocking did not continue, returning to the high levels of the past three years. SMM expects that with the easing of inventory pressure on domestic aluminum billets since the second half of October, the inventory is likely to remain largely stable within the range of 100,000-150,000 mt during the month. However, it is necessary to note the risk of inventory buildup with increased arrivals. Whether the inventory rhythm will change in the future still needs close attention to the downstream consumption situation at high aluminum prices and the smoothness of shipments from major sources. Overall, entering the end of the peak season in October, the environmental protection policy in north China affected local enterprise production. Coupled with high aluminum prices, some end-use sectors have resumed a wait-and-see sentiment, which may negatively impact the operating rate of aluminum billet producers and demand. SMM believes that there is a slight expectation for a decline in domestic primary aluminum billet production in October. However, over the past week, with the reduction in supply pressure of aluminum billets, shipment difficulties in Xinjiang, and the continuous rapid decline in previous inventories, the supply-demand balance in the aluminum billet market has performed well. Despite the base price consecutively rising and surpassing the 21,000 yuan/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 remains largely stable, with the expectations for production cuts in Yunnan falling through. Entering the end of the peak season in October, the proportion of aluminum liquid may adjust. On the demand side, during the transition phase between peak and off-peak seasons, the operating rate of aluminum downstream has intermittently weakened due to environmental protection and other issues. Based on the survey of orders on hand from enterprises, there is a risk of further decline in the operating rate of aluminum downstream in the future. In the short term, there are many macro uncertainties. The domestic aluminum supply growth rate has slowed, and the fundamentals of low inventory and high costs remain. In the short term, aluminum is likely to fluctuate upward, but close attention is still needed on the subsequent downstream operating rate, changes in in-transit volumes, and dynamic adjustments in casting ingot volumes. According to SMM survey analysis, after transportation returns to normal, there may be an increase in aluminum social inventory, but the pressure brought by this in the near term is limited. SMM expects that in early November, under the background of shipment difficulties in Xinjiang, domestic aluminum ingot inventory is likely to maintain a stable to slightly decreasing trend, with domestic aluminum ingot inventory expected to fluctuate around 550,000-650,000 mt, continuing the low levels of the past five years. Whether the inventory rhythm will change in the future still needs close attention to the downstream consumption situation at high aluminum prices and the smoothness of shipments from major sources.