Policy Expectations and Peak Season Demand Resonance Drive a Mild Increase in Aluminum Processing Operating Rate [SMM Downstream Weekly Survey]

SMM March 6, 2025:

This week, the operating rate of the aluminum processing industry showed a weak recovery trend, rising 1 percentage point WoW to 60.8%. Most segments continued to see an upward trend in operating rates. Specifically, the operating rate of primary aluminum alloy increased slightly WoW, with supply-side production expansion momentum persisting, though demand-side recovery remained sluggish. The operating rate of aluminum plate/sheet and strip rose to 70%, driven by a rebound in demand for automotive and battery-related products and policy support, though uncertainties in end-use consumption persisted. The operating rate of aluminum extrusion saw a narrow rebound, with high industrial extrusion demand offsetting pressure in the construction materials segment, as enterprises diversified their business layouts to mitigate risks. The traditional peak season supported demand for air-conditioner foil and battery foil, with leading aluminum foil enterprises maintaining sufficient orders and higher operating rates. The operating rate of secondary aluminum alloy increased slightly, but weak downstream orders limited production expansion. Only the operating rate of aluminum wire and cable remained flat WoW, as power grid orders were not released in bulk, and high aluminum prices suppressed inventory willingness, leading to short-term downward fluctuations. Overall, the recovery pace of end-use consumption remained slow, with no signs of a comprehensive rebound. The operating rate of the aluminum processing industry is expected to continue a mild recovery in March. Primary aluminum alloy, aluminum foil, and aluminum plate/sheet and strip segments are expected to maintain slight production increases, while aluminum extrusion requires attention to marginal changes in real estate demand. Aluminum wire and cable and secondary aluminum alloy face limited upside room due to insufficient orders. In the short term, caution is needed regarding the suppression of downstream stocking willingness by high aluminum prices and the risk of policy implementation delays. According to SMM forecasts, the operating rate of leading domestic downstream aluminum processing enterprises is expected to increase by 0.7 percentage points next week to 61.4%.

Primary Aluminum Alloy: This week, the operating rate of leading domestic primary aluminum alloy enterprises recorded 55.2%, up 1% WoW. Aluminum prices were relatively stable with a strong trend this week, and primary aluminum alloy enterprises continued their steady recovery in operating rates. Since late February, most primary aluminum alloy manufacturers have transitioned from the Chinese New Year liquid aluminum production schedule (slightly reduced compared to normal months) to the regular monthly cycle. Although early March demand for primary aluminum alloy showed no significant improvement and remained relatively weak, supply-side production expansion momentum persisted as inventory pressure eased. In early March, the downstream operating rate of primary aluminum alloy is expected to continue its weak recovery trend. However, if subsequent demand fails to match supply, the industry's momentum for further production expansion will be insufficient. SMM expects the operating rate of primary aluminum alloy to maintain an upward trend next week.

Aluminum Plate/Sheet and Strip: This week, the operating rate of leading aluminum plate/sheet and strip enterprises increased by 1.4 percentage points to 70%. With the arrival of March, demand for automotive and battery-related products rebounded significantly, driving some enterprises to further increase their operating rates. Coinciding with the Two Sessions, policies supporting the "trade-in" of consumer goods have once again gained momentum, boosting consumption expectations in sectors such as automotive and home appliances. However, weak consumption fundamentals still bring uncertainties to the operating rate of the aluminum plate/sheet and strip industry. Under a mixed backdrop of positive and negative factors, the operating rate of leading aluminum plate/sheet and strip enterprises is expected to fluctuate upward.

Aluminum Wire and Cable: This week, the operating rate of leading domestic aluminum wire and cable enterprises remained at 53%, flat WoW, reflecting weak recovery. Due to the unfulfilled delivery cycle of power grid orders, enterprises maintained a relatively moderate delivery pace, limiting the increase in operating rates. Over the past week, only Qinghai's agreement inventory winning bid results were finalized, while other provincial grids saw no new orders. Meanwhile, new energy grid connection orders increased slightly as PV module production schedules rose MoM. With aluminum prices approaching the 21,000 yuan mark this week, caution is needed regarding the suppressive impact of high aluminum prices on enterprises' willingness to build finished product inventories. In the short term, the aluminum wire and cable industry is expected to fluctuate downward.

Aluminum Extrusion: This week, the operating rate of the domestic aluminum extrusion industry increased by 2 percentage points WoW to 54.5%. The industrial extrusion segment maintained high prosperity, with leading enterprises sustaining operating rates at a high level of 80%. Although overall order saturation remained high, downstream applications were relatively dispersed. While the 3C sector showed promising growth prospects, its industry characteristics led to relatively transparent profit margins. In the construction materials segment, top-tier enterprises dynamically adjusted their product structures to address market pressure. On one hand, they focused on securing shares in public construction projects and strengthening cooperation with central and state-owned enterprises to reduce risks. On the other hand, they actively optimized the proportion of engineering and home decoration businesses, increasing the share of high-margin home decoration businesses to alleviate operational pressure. Notably, enterprises with diversified product portfolios demonstrated stronger risk resistance, effectively distributing operational pressure through a combination of construction materials, industrial extrusion, deep processing, and aerospace materials. The industry's main challenges currently include extended inventory destocking cycles due to low funding availability for engineering projects and intensified market competition caused by insufficient new project starts. Future market developments require close attention to inventory cycle turning points, the recovery pace of end-use demand, and marginal changes in regional industrial policies. SMM will continue to monitor industry dynamics.

Aluminum Foil: This week, the operating rate of leading aluminum foil enterprises increased by 1.1 percentage points to 75.4%. Entering March, the traditional peak season, demand for various aluminum foil products continued to recover. In the short term, demand growth for air-conditioner foil and battery foil has become a clear trend, with leading enterprises holding relatively sufficient orders on hand. In the short term, the aluminum foil industry is not expected to experience significant fluctuations in demand or rapid supply expansion, and the operating rate of leading aluminum foil enterprises is expected to remain stable or rise slightly.

Secondary Aluminum Alloy: This week, the operating rate of leading secondary aluminum enterprises increased slightly by 0.2 percentage points WoW to 56.5%. Entering March, secondary aluminum consumption only showed a slight recovery. Downstream die-casting enterprises reported weak order growth, with some enterprises experiencing YoY declines in order volumes, leading to insufficient price increases for ADC12 during the week. The suppressive effect of demand on prices remained evident, limiting the recovery space for secondary aluminum enterprises' operating rates. Most enterprises maintained normal production rhythms, while a few large enterprises saw slight increases in operating rates driven by new energy demand. In the short term, the industry's operating rate is expected to remain stable.

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(SMM Aluminum Team)