Demand Off-Season and Export Policy Adjustments: December Aluminum Processing PMI Likely to Remain Below the 50 Mark [SMM Downstream In-Depth Analysis]

According to SMM data, the composite PMI index for the domestic aluminum processing industry in November 2024 recorded 47.3%, down 6.6 percentage points MoM, remaining below the 50 mark. From the detailed indicators, the extrusion and aluminum wire and cable sectors were stimulated by export policy adjustments in November, leading to a rush for exports by enterprises. Coupled with domestic demand support, the operating rate showed MoM improvement, driving the industry's composite production index above the 50 mark, with the production index recording 55.9% in November. Stimulated by adjustments in tariffs and other policies on aluminum products both domestically and internationally, export orders for aluminum semis saw a significant increase in November, with the new export orders index recording 62.1%, showing a MoM rise. However, from the perspective of domestic end-use demand, the increase in orders showed a decline, with enterprises experiencing an overall decline in backlog orders, indicating an off-season state, dragging down the industry's composite index.

By product types:

Aluminum Plate/Sheet and Strip↓: The PMI for the aluminum plate/sheet and strip industry in November was 39.3%, down 18.5 points MoM. On one hand, the traditional off-season arrived in November, with many enterprises seeing a significant reduction in order volumes, and some enterprises also lowering their operating rates. On November 15, the Chinese government announced the cancellation of export tax rebates for aluminum semis starting December 1, leading many aluminum plate/sheet and strip enterprises with a high export ratio to rush to make shipments, resulting in unexpectedly low product inventories for some enterprises. With the implementation of the export tax rebate cancellation policy in December, the rush for exports is expected to subside. Additionally, domestic market demand is also expected to remain weak during the off-season, further dragging down operating rates. Under multiple pressures, the PMI for the aluminum plate/sheet and strip industry is expected to remain below the 50 mark in December.

Aluminum Foil↓: The PMI for the aluminum foil industry in November was 40.3%, down 17.4 points MoM. Entering the traditional off-season in November, although the cancellation of export tax rebates for aluminum semis led to some rush for exports, the overall production and sales volume of the industry still declined MoM. The demand for packaging foil and air-conditioner foil products decreased significantly compared to October. December remains an off-season, with the production and sales volume of some aluminum foil products expected to decline further, and the industry's PMI is expected to remain below the 50 mark.

Construction Aluminum Extrusion↑: The composite PMI index for the construction aluminum extrusion industry in November recorded 59.88%, rising above the 50 mark. According to an SMM survey, construction aluminum extrusion enterprises in South China, Anhui, Shandong, and other regions saw further increases in operating rates due to continued demand from projects such as "ensuring the delivery of housing projects," with the production index recording 81.0% and new orders at 58.6%. However, despite the overall improvement in industry demand, regional differences and structural issues remain, with some small and medium-sized enterprises facing significant competitive pressure, accelerating industry consolidation. Meanwhile, due to increased order volumes and some enterprises raising wages to retain employees, the employment index recorded 53.0%, indicating a warming labor market. Notably, the raw material inventory index and the index for supplier delivery time both recorded 50.0%, indicating a relatively stable supply chain. According to enterprise feedback, support from urban investment projects is expected to continue at year-end, but some enterprises indicated that the sustainability of market demand recovery remains to be seen. Therefore, the PMI index for construction aluminum extrusion is expected to fall below the 50 mark next month.

Industrial Extrusion↑: The composite PMI index for the industrial extrusion industry in November recorded 58.9%, remaining above the 50 mark. From the sub-indices, downstream demand for industrial extrusion remained strong in November, with the production index recording 70.5% and the new orders index at 53.5%. According to an SMM survey, some enterprises received new orders from Europe and the US, while demand in the Japan and South Korea markets continued to grow. However, orders from Southeast Asia (such as Vietnam) remained weak due to anti-dumping policies. Additionally, with increased production schedules at year-end, supply chain pressure became evident, but orders on hand indicated a relatively stable supply-demand pattern in the short term, with the index for supplier delivery time recording 50.0%. Supported by year-end peak season demand, the composite PMI index for industrial extrusion is expected to remain high, but attention should be paid to changes in the international market and the potential impact of policy factors on export orders.

Aluminum Wire and Cable↓: The composite PMI index for the domestic aluminum wire and cable industry in November recorded 46.5%, below the 50 mark, indicating an adjustment phase for the industry. As November transitioned into winter, the traditional consumption peak season waned, and aluminum wire and cable enterprises began to switch production tasks, focusing on orders for provincial grid conductors. However, due to a reduction in urgent orders, the production index recorded 39.12%. In terms of new orders, the increase in new orders for aluminum wire and cable declined compared to October, with provincial grid material and inventory agreement orders being the main focus, and the new orders index fell by 6.9 to 46.32%. Due to changes in the types of production orders, raw material procurement also changed, with the purchase index recording 54.65%, mainly to replenish raw material inventories. As year-end approaches, the tight delivery situation for State Grid orders has temporarily eased. Based on current enterprise orders, the PMI index for aluminum wire is expected to remain below the 50 mark in December.

Primary Aluminum Alloy↓: The PMI for the primary aluminum alloy industry in November was 44.2%, down 3.4 points MoM. The primary aluminum alloy industry entered the off-season in November, with many alloy enterprises reporting a MoM decline in order volumes. However, due to increasingly stringent requirements for aluminum liquid alloying tasks, few alloy plants reduced their operating rates, and production remained stable. Aluminum prices jumped initially and then pulled back in November, with continuous declines at month-end leading to strong bearish sentiment among downstream customers, reducing their enthusiasm for picking up goods, and resulting in inventory accumulation for some alloy enterprises. December remains an off-season, with order volumes and operating rates expected to show little change compared to November, and the industry's PMI is expected to hover around the 50 mark.

Secondary Alloy→: The PMI for the secondary aluminum industry in November decreased by 2.2 percentage points MoM to 57.6%, remaining above the 50 mark. In terms of production, driven by year-end order rushes from terminals, the production of secondary aluminum manufacturers, mainly large factories, generally rebounded in November. However, due to volatile aluminum prices in November, downstream enterprises' purchase willingness was suppressed, and coupled with tight raw material supply, the overall increase in production was limited. Other enterprises also faced challenges such as raw material shortages, production losses, or insufficient orders, making it difficult to increase or even reducing production. Despite some enterprises increasing raw material procurement to meet production needs, and a few starting to stockpile before the year-end, high aluminum scrap costs limited inventory growth. To alleviate financial pressure, finished product inventories at secondary aluminum plants decreased. The PMI for December is expected to decline compared to November, remaining around the 50 mark.

Brief Analysis: From the perspective of various aluminum processing industries, the operating rates for the plate/sheet, strip, and foil industries in November showed a significant MoM decline. Although there were urgent production situations for export orders, the increase in industry production brought by export orders was limited, resulting in the PMI indices for the plate/sheet, strip, and foil sectors remaining below the 50 mark in November. The aluminum wire and cable sector entered the off-season due to power grid construction and other factors, with industry demand showing a significant MoM decline, indicating a clear off-season state. In November, the extrusion sector saw an improvement in operating rates, driven by policy stimuli such as "ensuring the delivery of housing projects" in some regions and the positive impact of increased export order production schedules, leading to the industry's PMI remaining above the 50 mark. Entering December, the cancellation of export tax rebates for domestic aluminum semis will fully take effect, and overseas orders and production schedules are expected to decline. Additionally, with the arrival of winter, the construction sector and power grid construction will enter the off-season, leading to a decline in end-use demand, with operating rates for curtain wall panels, construction aluminum extrusion, and aluminum wire and cable expected to continue to decline. Based on enterprise production schedules and new orders, SMM expects the PMI for the domestic aluminum processing industry in December to remain below the 50 mark, with a MoM decline of 2.6 percentage points to around 41%.