Aluminum Prices Fell Below 20,000 Yuan After Three Months, Stimulating Domestic Aluminum Ingot Outflows to Hit a New High for the Year [SMM Analysis]

Last week, aluminum prices significantly retreated below 20,000 yuan. Except for strong spot premiums in south China, both SHFE aluminum and spot discounts weakened during the week. Despite the continued decline in operating rates of downstream enterprises due to the off-season, the cancellation of export tax rebates, and regional environmental protection-driven production restrictions, outflow data sharply contrasted with operating performance. The aluminum price falling below 20,000 yuan after three months, combined with the delayed appearance of a domestic inventory buildup turning point, stimulated downstream pre-holiday restocking and stockpiling at low prices. According to SMM statistics, domestic aluminum ingot outflows increased by 23,600 mt WoW to 154,500 mt last week, reflecting that downstream has entered a concentrated restocking phase ahead of the year-end and holidays. Additionally, factors such as suppliers clearing inventory at year-end and low aluminum prices drove domestic aluminum ingot outflows to a new high for the year. Specifically, due to the limited impact of production restrictions in Gongyi and expectations of easing, outflows rebounded sharply last week, increasing by 13,000 mt to 52,800 mt. Meanwhile, outflows in Wuxi and Foshan rose by 6,700 mt and 2,900 mt, respectively.

At the same time, consecutive destocking over the past week pushed domestic aluminum ingot inventory close to the 500,000 mt threshold. According to SMM statistics, as of December 23, 2024, domestic social inventory of aluminum ingots stood at 503,000 mt, while the inventory of marketable aluminum ingots was 377,000 mt, down by 25,000 mt from last Thursday. In addition to the rapid outflows analyzed above, arrivals remained stable recently due to coal supply guarantees in mid-December in Xinjiang, with some backlog yet to be shipped. Meanwhile, domestic arrivals were limited as the market was in the long-term contract negotiation period, and many aluminum plants had already exceeded their annual sales targets, significantly slowing the pace of external shipments. On a YoY basis, current domestic aluminum ingot inventory is 70,000 mt higher than the same period last year.

Although the aluminum price correction exceeded expectations in driving spot outflows, the sustainability of high aluminum ingot outflows remains limited due to the strong off-season sentiment in downstream operations. Regarding arrivals, shipments from Xinjiang are expected to ease significantly in the latter half of this week, clearing previous backlogs and potentially increasing in-transit volumes. SMM forecasts that domestic aluminum ingot inventory in December will hover around 500,000-600,000 mt, with the risk of sustained inventory buildup increasing, and the turning point may be delayed until late December. Close attention should be paid to changes in downstream operations before the year-end holidays and whether the aluminum price correction continues to drive spot outflows.

Over the weekend, aluminum billet inventory and outflows showed initial turning points, aligning with expectations on the consumption side. Regarding aluminum billet inventory, concentrated arrivals occurred over the weekend due to increased in-transit shipments from north-west China, including Xinjiang and Ningxia. According to SMM statistics, as of December 23, domestic social inventory of aluminum billets reached 99,000 mt, up by 9,900 mt WoW, approaching the 100,000 mt threshold again. The previously tight supply of aluminum billets has eased significantly. On a YoY basis, the gap with the same period last year widened to 34,900 mt, remaining at a three-year high for the same period. Regarding outflows, aluminum billet outflows dropped sharply by 8,300 mt WoW to 39,300 mt last week. Although some downstream enterprises had shown interest in year-end restocking at low prices earlier, weak downstream operating performance and high processing fees suppressed outflows. Compared to the robust aluminum ingot outflows, the sustainability of high aluminum billet outflows is weaker.

SMM expects that the off-season sentiment in the aluminum extrusion sector will intensify, with aluminum extrusion operating rates continuing to fluctuate downward. At the year-end stage, domestic aluminum billets are expected to remain in a weak supply-demand balance. With signs of backlog easing in Xinjiang, shipments to east and south China are expected to increase significantly, and subsequent arrivals may see notable replenishment. Domestic aluminum billet inventory is likely to stabilize or slightly increase within the month, with a return to the 100,000 mt threshold by month-end being almost certain. Close attention should also be paid to changes in downstream operations before the year-end holidays and whether the aluminum price correction continues to drive spot outflows.

On the demand side for aluminum billets, the weekly operating rate of the domestic aluminum processing industry fell by 1.8 percentage points WoW to 48% last week. This was mainly due to the domestic off-season and the earlier rush to meet export deadlines, which had partially depleted demand, leading to a decline in orders on hand. By segment, differences in construction extrusion persisted across regions. Some enterprises in south China continued steady production with rush orders, while some in east China reduced output proactively, considering year-end payments. In industrial extrusion, new orders for PV extrusion were insufficient due to a significant short-term decline in production schedules at module factories. Automotive extrusion remained stable, with some enterprises reporting that year-end promotions by automakers supported extrusion orders. Overall, the domestic off-season sentiment remains strong, and aluminum extrusion operating rates are expected to continue fluctuating downward.