Interpretation of Aluminum Inventory Performance After the Lantern Festival: Is the Inventory Buildup Slightly High? When Will It Ease? [SMM Analysis]

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With the conclusion of the Lantern Festival, downstream aluminum enterprises have fully resumed production, and domestic aluminum demand is expected to enter a rapid recovery phase. However, the recovery process is gradual, and domestic aluminum inventory in the second week after the holiday has yet to show a significant improvement, making it difficult to support a further short-term rise in aluminum prices.According to Shanghai Metals Market (SMM) data, as of February 17, 2025, the total social inventory of domestic aluminum ingots and aluminum billets rose to 1.125 million mt, consecutively breaking through the key thresholds of 1 million mt and 1.1 million mt.Specifically, inventory surged by 102,000 mt WoW (up 9.9%), increased by 197,000 mt compared to the first day after the holiday (February 5), and accumulated an increase of 410,000 mt compared to the pre-holiday baseline (January 27). On a YoY basis, the inventory buildup in the second week after the holiday this year remains higher than last year's increase of 78,000 mt and growth rate of 7.9%, with a slightly accelerated buildup pace, reflecting the current mismatch between supply elasticity release and demand recovery.

In terms of aluminum ingot inventory, according to SMM statistics,as of February 10, 2025, SMM reported domestic aluminum ingot social inventory at 729,000 mt, with circulating aluminum inventory at 603,000 mt, up 75,000 mt (11.5%) from the first day after the holiday (February 5) and up 237,000 mt from pre-holiday levels (January 27).On a YoY basis, the inventory increase in the first week after the Chinese New Year exceeded last year's increase of 66,000 mt and growth rate of 10.3%. The inventory buildup in the first week after the holiday continued the slightly higher trend observed during the Chinese New Year holiday. Regarding outflows from warehouses, aluminum billet outflows during the holiday period (January 27-February 9) reached 70,500 mt, roughly higher than the same period last year.

By region, east China remains the main driver of aluminum ingot inventory buildup after the holiday, primarily due to the still narrow Guangdong-Shanghai price spread and the higher Henan-Shanghai price spread compared to last year. As a result, east China continues to be the preferred destination for supplies from Xinjiang and other northern regions, with a buildup of 31,000 mt to 289,000 mt in the first week after the holiday. SMM expects arrivals in Wuxi to remain high this week, and the situation in the second half of February will depend on regional price spreads to determine the specific flow of goods. Gongyi saw a buildup of 21,000 mt to 112,000 mt. Although in-transit volumes have decreased compared to the holiday period, the backlog at stations has not yet been cleared, and inventory inflows are expected to continue increasing this week. However, the in-transit volumes in Gongyi after the holiday are relatively manageable, and aluminum ingot inventory in the region is expected to see a short-term rapid increase but for a limited duration. Foshan recorded a buildup of 21,000 mt to 193,000 mt, with no new developments after the holiday, maintaining a normal inventory buildup pace.

SMM believes that February as a whole is within the domestic aluminum ingot inventory buildup cycle. Based on currently available data and historical trends, domestic aluminum ingot inventory is expected to continue increasing rapidly in the first half of February as downstream enterprises remain on holiday before the Lantern Festival. In the second half of the month, as downstream production resumes, the inventory buildup is likely to slow, with the extent of the slowdown depending on the pace of downstream production recovery and restocking demand. Over the past seven years, only in 2021 did destocking occur in the fifth week after the holiday, with half of the years seeing destocking in the sixth week after the holiday. Last year's destocking turning point was even further delayed.SMM expects that under the anticipation of the first traditional peak season for downstream demand in March and April, and as downstream production gradually returns to normal levels, the first post-holiday destocking this year is likely to occur in the sixth week after the holiday or earlier. The turning point for domestic aluminum ingot inventory is expected to appear around mid-March, with the Q1 inventory peak likely to reach approximately 850,000-900,000 mt.SMM will continue to monitor the post-holiday recovery of downstream production and the in-transit situation of aluminum ingots.

In terms of aluminum billet inventory, according to SMM statistics,as of February 10, 2025, SMM reported domestic aluminum billet social inventory at 294,500 mt, up 20,000 mt (7.1%) from the first day after the holiday (February 5) and up 71,000 mt from pre-holiday levels (January 27).On a YoY basis, the inventory increase in the first week after the Chinese New Year exceeded last year's increase of 16,000 mt and growth rate of 6.2%. The inventory buildup in the first week after the holiday continued the slightly higher trend observed during the Chinese New Year holiday. Regarding outflows from warehouses, aluminum billet outflows during the holiday period (January 27-February 9) reached 17,100 mt, roughly higher than the same period last year.

By region, during the holiday period, Foshan recorded a buildup of 17,200 mt to 134,200 mt, Nanchang recorded a buildup of 2,000 mt to 31,500 mt, maintaining a normal inventory buildup pace after the holiday. However, it is worth noting that Wuxi recorded a destocking of 2,200 mt, mainly due to the strong post-holiday production recovery of local downstream enterprises, with better order volumes and restocking willingness compared to other regions. The inventory buildup in Huzhou and Changzhou showed no significant changes.

SMM believes that the first half of February is within the domestic aluminum billet inventory buildup cycle. Based on currently available data and historical trends, the turning point for domestic aluminum billet destocking generally occurs earlier than that of aluminum ingots, and this pattern is likely to continue this year. Over the past seven years, the turning point for aluminum billet destocking has mostly occurred in the second or third week after the holiday.SMM expects that under the anticipation of the first traditional peak season for downstream demand in March and April, and as downstream production gradually returns to normal levels, the turning point for domestic aluminum billet inventory is expected to appear around late February, with the Q1 inventory peak likely to reach approximately 300,000-350,000 mt.SMM will continue to monitor the post-holiday recovery of downstream production and aluminum billet consumption.

On the demand side for aluminum billets, the overall operating rate of the domestic aluminum extrusion industry reached 61.3% in the first week after the holiday, showing a significant rebound compared to earlier levels. Among the sub-sectors, the industrial extrusion segment performed particularly well, with some leading automotive extrusion enterprises shortening their holiday periods, providing strong support for this week's operating rate. PV extrusion enterprises maintained stable operations with no new orders, mainly due to the lack of a significant rebound in downstream module production schedules. In the construction extrusion sector, leading enterprises resumed production in an orderly manner after the holiday. The full resumption of production in the aluminum extrusion industry is expected to occur after the Lantern Festival, as some small and medium-sized plants are still on holiday. SMM will continue to track the post-holiday production resumption and order recovery.
 

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