The Weekly Operating Rate of Aluminum Billets Did Not Decline Significantly Before the Holiday, and Processing Fees May Perform Poorly After the Holiday [SMM Analysis]

Published: Jan 26, 2025 17:19

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SMM January 26 News: According to the latest weekly survey data from SMM, the weekly operating rate of aluminum billets recorded 64.45% this week, down 0.44% WoW. Due to the re-signing of liquid aluminum long-term contracts by aluminum billet manufacturers at the year-end, coupled with the off-season impact leading to significant sales pressure, the operating rate of aluminum billet manufacturers declined under resistance. However, considering the pressure of liquid aluminum alloying, some aluminum plants in certain regions offered discounts on liquid aluminum during the Chinese New Year, resulting in a counter-trend increase in the operating rate of some aluminum billet enterprises at the year-end. By region, the operating rate in Guizhou fell 29.31% WoW to 37.14%; in Guangxi, it dropped 10.61% WoW to 48.53%; in Yunnan, it decreased 9.32 to 70.16%; while in Shandong, it rose 9.39 to 74.17%.

According to the latest weekly survey by SMM, the weekly operating rate of aluminum billets this week recorded 64.45%, down 0.44% WoW. Due to the year-end renewal of long-term contracts for liquid aluminum by aluminum billet manufacturers, coupled with the off-season sales pressure, the operating rate of aluminum billet manufacturers declined under pressure. However, considering the pressure of liquid aluminum alloying, some aluminum smelters in certain regions offered discounts on liquid aluminum during the Chinese New Year, leading to a counter-trend increase in the operating rate of some aluminum billet enterprises at year-end. By region, the operating rate in Guizhou fell 29.31% WoW to 37.14%; in Guangxi, it dropped 10.61% WoW to 48.53%; in Yunnan, it decreased by 9.32 to 70.16%; while in Shandong, it rose by 9.39 to 74.17%. Regarding aluminum billet inventory, according to SMM statistics, as of January 20, domestic social inventory of aluminum billets stood at 200,800 mt, with an inventory buildup of 49,700 mt compared to last Thursday. As downstream profile enterprises have completed pre-holiday stockpiling and aluminum prices returned to the 20,000 yuan/mt level, buyers adopted a wait-and-see attitude, leading to increased arrivals of aluminum billets and a significantly accelerated inventory buildup pace. On a YoY basis, the gap compared to the same period last year widened to 90,100 mt, remaining at a high level for the same period in the past three years and significantly ahead. Domestic aluminum billet inventory in January is expected to continue building up, with this week's inventory already exceeding expectations by surpassing the 200,000 mt mark. Post-holiday inventory is projected to peak at around 300,000-350,000 mt. In terms of outflows from warehouses, as pre-holiday stockpiling has concluded, last week's aluminum billet outflows from warehouses dropped significantly by 13,100 mt WoW to 29,000 mt. Last week, the macro front faced uncertainties due to the delay in new tariffs, and the increase in aluminum inventory amplified fundamental pressure, causing aluminum prices to decline under pressure. Due to weak market sentiment, aluminum billet processing fees showed insufficient rebound strength, hovering at low levels. Although aluminum billet manufacturers had expectations for production cuts before the holiday, considering the issue of liquid aluminum consumption and the increased discount space provided by aluminum smelters to billet manufacturers, manufacturers plan to maintain the operation of a small portion of capacity. By region, downstream in Foshan has mostly entered the holiday period, with suppliers quoting passively and buyers showing lukewarm responses. The processing fee for φ120 aluminum billets was 100 yuan/mt, up 10 yuan/mt from last Thursday. In Wuxi, market activity was sparse, and transactions progressed slowly, with the processing fee for φ120 aluminum billets at 150 yuan/mt, up 20 yuan/mt from last Thursday. In Nanchang, market supply was replenished, but demand remained weak, and trading sentiment was subdued, with the processing fee for φ120 aluminum billets at 180 yuan/mt, up 20 yuan/mt from last Thursday. As downstream has already entered the off-season at year-end, aluminum billet inventory has increased significantly. With profile enterprises expected to resume operations around February 10, post-holiday demand recovery is anticipated to be slow. Aluminum billet inventory is expected to increase significantly, and the post-holiday oversupply situation is almost certain. During the Chinese New Year, billet manufacturers offered more profit concessions, leading to higher in-plant inventory post-holiday and a need for rapid sales. Consequently, post-holiday competition in the aluminum billet market is expected to be intense, with processing fees likely to face downward pressure. Additionally, with aluminum price fluctuations, efforts should be made to avoid the challenging situation of "negative processing fees."

Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM‘s internal database model. They are for reference only and do not constitute decision-making recommendations.

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