Aluminum Ingots and Billets Both See Inventory Buildup; January Aluminum Inventory Pressure May Be Hard to Ease [SMM Analysis]

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In terms of aluminum ingot inventory, since late December, transportation in Xinjiang has basically returned to normal. Apart from the regular in-plant and station turnover inventory, the backlog in Xinjiang has been largely cleared. Entering January, according to SMM statistics, as of January 6, 2024, domestic social inventory of aluminum ingots stood at 495,000 mt, with domestic available aluminum inventory at 369,000 mt, up 8,000 mt WoW. This marks the first inventory buildup of domestic aluminum ingots since December 9. On a YoY basis, current domestic aluminum ingot inventory remains 36,000 mt higher than the same period last year. Regarding outflows from warehouses, SMM statistics show that last week, domestic aluminum ingot outflows from warehouses dropped significantly by 21,300 mt WoW to 108,600 mt. Although partially affected by the New Year holiday, as some downstream sectors have entered or are preparing for holiday shutdowns by year-end, the record-high outflows in late December seem to have been a fleeting moment. Over the past two weeks, aluminum ingot outflows have significantly pulled back, returning to the normal levels of the year-end off-season.

On the supply side of aluminum, entering January 2025, domestic operating capacity of aluminum remained stable. The negative impact of earlier production cuts on output has become evident. SMM reports that no additional production cuts are currently planned. By the end of December, domestic annualized operating capacity of aluminum remained steady at 43.53 million mt/year. During the month, the proportion of casting ingots increased in multiple regions, while the proportion of liquid aluminum decreased by 1.22 percentage points MoM and 1.99 percentage points YoY. Based on SMM's liquid aluminum proportion data, December's domestic aluminum casting ingot production increased by 8.23% YoY to approximately 1.03 million mt. As the Chinese New Year approaches, downstream demand weakens, and some billet plants have implemented production cuts. The proportion of liquid aluminum is expected to further decrease to around 70% in January.

Therefore, the overall supply pressure of domestic aluminum ingots before and after the Chinese New Year cannot be ignored. Although the aluminum price correction in December exceeded expectations in boosting spot outflows, the overall domestic aluminum demand remains in an off-season atmosphere. By year-end, some downstream sectors have entered or are preparing for holiday shutdowns. Meanwhile, aluminum prices below 20,000 yuan/mt may become the norm during the pre- and post-Chinese New Year period. Downstream purchasing interest has gradually waned, and the likelihood of a strong rebound in aluminum ingot outflows is minimal. Regarding arrivals, with Xinjiang's transportation having normalized for some time, concentrated arrivals are expected to peak in the next two weeks. This could significantly increase pressure on the spot market, further solidifying the inventory buildup turning point. SMM expects that with the initial appearance of the aluminum ingot inventory buildup turning point, domestic aluminum ingot inventory may enter a sustained buildup phase in January. By the eve of the Chinese New Year, domestic aluminum ingot inventory could rise to 550,000-600,000 mt. Close attention should be paid to changes in downstream operating rates before the year-end holiday and whether the aluminum price correction continues to support spot outflows.

Turning to aluminum billet inventory. On the supply side, according to SMM's recently concluded December survey on primary aluminum billets, although December's domestic primary aluminum billet production pulled back, the decline was less than expected. In December 2024 (31 days), total national primary aluminum billet production was 1.465 million mt, down 12,000 mt MoM (30 days in November 2024), a decrease of 0.81%. YoY, production increased by 162,000 mt, up 12.4%. The domestic operating rate of primary aluminum billets in December was 56.4%, down 0.4% MoM. Entering early January, as no further reductions in domestic aluminum billet supply have been reported, arrivals remain ample. According to SMM statistics, as of January 6, domestic social inventory of aluminum billets was 134,100 mt, up 10,700 mt WoW. Since the inventory buildup turning point on December 23, domestic aluminum billet inventory has been increasing by over 10,000 mt weekly. On a YoY basis, the gap with the same period last year has widened further to 51,100 mt. Regarding outflows from warehouses, last week, aluminum billet outflows from warehouses decreased by 6,600 mt WoW to 35,100 mt. Although affected by the New Year holiday, the outlook for subsequent aluminum billet outflows remains pessimistic. Inventory levels remain at a relatively high level compared to the same period over the past three years.

Due to the earlier expansion of the Guangdong-Shanghai price spread, in addition to regular supplies from Guangxi, Guizhou, and Yunnan in south-west China, northern sources from Ningxia, Xinjiang, and Qinghai also entered the South China market, causing the supply-demand pattern of aluminum billets in South China to collapse. Processing fees fell rapidly and lacked support. Consequently, concentrated arrivals were observed over the weekend in Wuxi and Nanchang, where processing fees remain relatively high, with inventory buildup of 5,300 mt and 2,000 mt, respectively. As the off-season atmosphere in the aluminum extrusion sector intensifies, operating rates for aluminum extrusion remain in a downward trend, and pre-holiday stockpiling efforts are relatively small. With downstream manufacturers entering holiday or pre-holiday shutdowns, the domestic aluminum billet market may face an oversupply situation. Additionally, with significant improvements in Xinjiang's transportation, there is a clear expectation of increased shipments to east and south China. As these shipments continue to arrive in concentration, SMM expects domestic aluminum billet inventory to continue building up in January, potentially reaching 180,000-200,000 mt by the eve of the Chinese New Year.

On the demand side for aluminum billets, domestic aluminum extrusion operating rates recorded 47.0% last week, down 0.6% WoW. Specifically, the off-season atmosphere in construction extrusion has become more pronounced. Year-end rush orders for construction projects in south China in December have mostly been completed, and some leading enterprises reported fewer orders on hand, leading to a significant decline in operating rates. As the Chinese New Year approaches, operating rates are expected to continue falling. For industrial extrusion, orders for automotive extrusion remain stable to positive, mainly due to ongoing downstream demand and stockpiling for the Chinese New Year, allowing related extrusion plants to secure some new orders, supporting their operating rates. In contrast, the off-season atmosphere for PV extrusion is strong, with leading enterprises experiencing a notable decline in operating rates. Overall, as the Chinese New Year approaches, some small enterprises have announced order cutoffs and holiday plans, while medium and large enterprises continue normal production. Operating rates in the aluminum extrusion industry are expected to gradually weaken.

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