Internal and External Challenges: Remelting Billet Supply Faces Severe Headwinds
In November, an SMM survey of domestic remelting billet enterprises (remelting billets: produced using only aluminum scrap or ingots, without liquid aluminum; aluminum scrap content between 90-100%) was conducted with comprehensive coverage (sample coverage rate >95%), and relevant data was updated. According to the latest SMM estimates, China's total existing capacity for remelting billets in 2024 reached 9.007 million mt, but the annual production was only 3.266 million mt, down 18.4% YoY. This translates to an average annual operating rate of 36.3% for the remelting billet industry in 2024, nearly ten percentage points lower than last year.
SMM analysis indicates that the remelting billet industry may face severe challenges in the coming years, primarily due to internal and external pressures. Internal factors include intensified competition between primary aluminum billets and remelting billets in the market. In H2 this year, primary aluminum billets repeatedly hit historical monthly production highs, leading to a significant oversupply in the aluminum billet market. Enterprises have been lowering processing fees to quickly recoup funds, severely squeezing the market space for remelting billet makers. Additionally, tight aluminum scrap supply has been a critical factor in the poor performance of the remelting billet industry. Periodic constraints on aluminum scrap supply have led to insufficient price differences between primary metal and scrap, significantly increasing the cost of using scrap for remelting billet enterprises, thereby weakening their price advantage and even causing processing fees to be inverted compared to primary aluminum billets.
External factors are mainly concentrated on the demand side, especially in the construction aluminum extrusion market. Due to the continued downturn in the real estate market, the production of construction aluminum extrusion has shown negative growth this year, and this trend is expected to be difficult to reverse in the coming years. Under the dual pressures of internal and external challenges, the remelting billet market is in a difficult position, and its supply is expected to continue weakening in the near future.
Weak Demand for Construction Materials: Pessimistic Outlook for Remelting Billet Demand
In recent years, the traditional real estate market has continued to be sluggish. According to NBS data, the completed area of real estate from January to October has been declining by 20% YoY, raising concerns about the future demand for construction aluminum extrusion. However, according to an SMM survey, although there was a decline in orders on hand for enterprises in H1 2024, it was not overly significant. Especially in South China, some leading enterprises have quickly restored and maintained full production since the beginning of the year, mainly due to the demand recovery for construction aluminum extrusion driven by urban village renovation projects. The survey also found that with the introduction of multiple supportive and promotional policies by the state, the proportion of orders for residential and commercial renovation projects has expanded, and infrastructure projects' demand for construction aluminum extrusion is also growing. However, these orders are usually relatively small in scale and highly customized, making it difficult to reverse the negative YoY growth trend caused by the decline in traditional real estate demand. SMM estimates that the demand for construction aluminum extrusion in China will decrease by 4.3% YoY to around 11.18 million mt in 2024.
Dragged down by the continued downturn in real estate and the significant rise in raw material costs in H1 this year, many small enterprises primarily producing construction aluminum extrusion have gradually shut down, causing a chain reaction of production cuts and shutdowns among remelting billet makers. The downstream applications of remelting billets are mostly in construction aluminum extrusion enterprises, especially small and medium-sized construction material enterprises. On one hand, most remelting billet enterprises have a locational advantage, being close to aluminum consumption areas, which facilitates the procurement of secondary aluminum raw materials and saves transportation costs for downstream enterprises compared to primary aluminum billet enterprises that need to be near aluminum smelters. On the other hand, remelting billets have unique characteristics compared to primary aluminum billets, with certain trace elements that primary aluminum billets do not have, making them preferred by some customers, particularly small and medium-sized construction material factories. If customers have special requirements, there is also the possibility of substituting primary aluminum billets with remelting billets, thereby supporting the market demand for remelting billets.
SMM analysis points out that in recent years, the continued weakness in demand for construction materials, coupled with high scrap costs, intensified competition in the primary aluminum billet industry, and the "leading enterprise effect" in the downstream market, have led to a gradual shrinkage of the remelting billet market. The unfavorable situation of weak supply and demand is expected to persist in the coming years. Especially with the recent cancellation of export tax rebates for aluminum semis, downstream extrusion export enterprises are experiencing a "pain period." SMM's latest estimates show that the consumption of remelting billets in China will be 3.208 million mt in 2024, down 19.5% YoY. Despite the increasing demand from the downstream market for a higher proportion of secondary aluminum in aluminum billet raw materials, most remelting billet enterprises find it difficult to quickly transition to high value-added products under multiple unfavorable factors, leading to an overall industry downturn. The consumption of remelting billets is expected to remain below 3 million mt in the coming years. Due to the more pronounced decline in demand compared to the reduction in supply, the surplus situation in the remelting billet industry is expected to persist in the coming years.
In the long run, national support policies for real estate and infrastructure construction will provide some support for the demand for construction aluminum extrusion. As the remelting billet industry undergoes a process of natural selection and the leading enterprises within the industry continue to transform and upgrade, the remelting billet industry is expected to achieve a slow recovery in the coming years.
