Aluminum Inventory Trend Seem Unclear: Will Year-End Inventory Buildup Be Delayed? [SMM Analysis]

Last week, although aluminum prices remained weak, the most-traded SHFE aluminum contract consistently stabilized above the 20,000 mt mark, providing confidence for market buyers to restock at lower prices. According to SMM statistics, last week, domestic aluminum ingot outflows from warehouses slightly decreased by 2,000 mt WoW to 130,300 mt, but the strong outflow performance still led to destocking of domestic aluminum ingots in early December. Coupled with the stable and slightly slowed shipment pace in Xinjiang recently, the concentrated arrivals in the mid-to-late week were milder compared to the previous week. As of December 2, 2024, SMM statistics showed that the social inventory of domestic aluminum ingots was 546,000 mt, and the inventory of domestically available aluminum was 420,000 mt, down 7,000 mt compared to last Thursday. Despite the inventory buildup of 4,000 mt in Gongyi due to concentrated arrivals last weekend, the mild arrival pressure in Wuxi still led to a destocking of 10,000 mt, and the continued stable small-scale destocking in Foshan delayed the year-end overall inventory buildup turning point. On a YoY basis, the current domestic aluminum ingot inventory decreased by 43,000 mt compared to the same period last year.

SMM believes that entering early December, although the recent shipment pace in Xinjiang has slowed, causing some fluctuations in domestic aluminum ingot inventory, the backlog situation in Xinjiang is expected to continue to ease, with an anticipated increase in shipments to Gongyi and Wuxi. Caution is needed against the pressure and risks caused by concentrated arrivals. Although the year-end inventory buildup turning point is delayed, the sustainability of growth in aluminum ingot outflows from warehouses in the off-season is limited. SMM expects the inventory turning point for aluminum ingots to appear around mid-December. While low inventory continues to provide short-term support for aluminum prices, excessive optimism is not advisable. SMM expects the overall domestic aluminum ingot inventory to hover around 550,000-650,000 mt in December, with the risk of sustained inventory buildup increasing, and the inventory may reach around 600,000 mt in mid-to-late December. Observing the changes in downstream operations after the official implementation of the aluminum semis export tax rebate cancellation and whether the aluminum price correction phase continues to boost spot cargo outflows is necessary.

This week, aluminum billet inventory and outflows also performed stronger than expected. According to SMM statistics, as of December 2, domestic aluminum billet social inventory was 98,200 mt, down 1,100 mt compared to last Thursday, falling below the 100,000 mt mark, making recent aluminum billet supply slightly tight. On a YoY basis, it is 4,000 mt higher than the same period last year, still at a high level for the same period in the past three years. In terms of outflows, last week, aluminum billet outflows from warehouses significantly increased by 6,200 mt to 45,800 mt WoW. Entering December, the "rush to export" phase has ended. According to an SMM survey, downstream enterprises in South China have not seen changes in orders and demand compared to late November, with enterprises having export orders mostly delivering in advance. Feedback indicates that the "rush to export" in South China is not obvious, while the export proportion of extrusion enterprises in East China and plate/sheet, strip and foil enterprises in central China is relatively larger. This is reflected in the sharp increase of 6,800 mt in aluminum billet outflows from Wuxi last week to 16,300 mt, and the nearly doubled outflow increase of 1,500 mt in Changzhou.

SMM expects that although the recent operating rate of aluminum billet producers has slightly declined and the shipment pace in Xinjiang has slowed, significantly reducing the overall arrival pressure of aluminum billets in China, the "rush to outflow" in the last week of the downstream has boosted the aluminum billet inventory performance. However, at the year-end stage, domestic aluminum billets are still in a weak supply and demand pattern, and the shipments from Xinjiang to Huzhou and other places remain stable, with subsequent arrivals expected to be significantly supplemented. In early December, domestic aluminum billet inventory is expected to mainly stabilize with a slight increase. It is also necessary to observe the changes in downstream extrusion sector operations after the official implementation of the aluminum semis export tax rebate cancellation and whether the aluminum price correction phase stimulates aluminum billet outflows.

On the demand side for aluminum billets, last week, the weekly operating rate of the domestic aluminum processing industry increased by 1.00 percentage points WoW to 52.50%. This increase in the operating rate was mainly driven by the rush to meet year-end orders and some enterprises accelerating production to meet annual production targets. According to an SMM survey, the order growth for construction extrusion enterprises mainly came from the concentrated delivery demand of year-end real estate projects, while industrial extrusion enterprises were significantly boosted by orders from the transportation and new energy sectors. Although the operating rate rebounded this week, some enterprises indicated that the current market competition has intensified, processing fees continue to be under pressure, and profit margins remain low. SMM will continue to monitor subsequent market dynamics and update relevant data in a timely manner.