Overall inventory buildup during the holiday is controllable, and domestic aluminum inventory will face a "critical period" after the holiday.[SMM Analysis]

Let's first review the inventory performance before the Labour Day holiday. Driven mainly by restocking demand ahead of the holiday, and with the slower pace of arrivals since the second half of April, coupled with the temporary end of disruptions from imported supplies, the destocking of domestic aluminum ingot inventory accelerated again by the end of April, approaching the 600,000 mt mark, providing a certain degree of upward support for aluminum prices before the holiday. According to SMM statistics, as of April 30, the inventory of aluminum ingots at major domestic consumption hubs stood at 614,000 mt, a decrease of 29,000 mt from Monday of this week. The domestic aluminum billet inventory also approached the 150,000 mt mark. Currently, domestic aluminum ingot inventory has remained at a low level compared to the same period in the past three years for seven consecutive weeks since the inflection point of destocking in early March. The accelerated decline in aluminum billet inventory by the end of April also exceeded expectations, falling to a low point compared to the same period in the past three years. In other words, domestic aluminum inventory has recently been at an advantageous position of absolute lows compared to the same period in the past three years.

Despite the projections based on in-transit data and feedback from multiple sources before the Labour Day holiday, domestic aluminum product arrivals in China during this year's Labour Day holiday are expected to exceed those of the same period last year. Attention should be paid to the risk of periodic inventory buildup caused by concentrated arrivals during the holiday. Looking back at the pre-holiday expectations, Gongyi and Foshan regions were anticipated to face relatively severe pressure from concentrated arrivals after the holiday, while the Wuxi region was expected to experience a relatively milder situation. SMM estimates that the total arrivals in the three regions during the Labour Day holiday will be approximately 72,000 mt, up about 10,000 mt YoY. Specifically, the planned arrivals in Wuxi are estimated at around 22,000 mt, down about 10,000 mt YoY, while the planned arrivals in Foshan and Gongyi are estimated at around 20,000 mt and 30,000 mt respectively, each up about 10,000 mt YoY. So, what was the actual situation of domestic aluminum ingot arrivals during the Labour Day holiday? According to SMM's latest statistics, the actual arrivals in the three regions during the holiday were approximately 56,000 mt, about 16,000 mt less than pre-holiday expectations and about 6,000 mt less than the same period last year. Specifically, the actual arrivals in Wuxi were 18,000 mt, in Foshan were 18,000 mt, and in Gongyi were approximately 20,000 mt, all lower than expected.

Affected by the holiday, domestic aluminum inventory saw its first inventory buildup since March. However, due to lower-than-expected arrivals of aluminum ingots during the Labour Day holiday, the overall inventory buildup after the holiday was manageable, and no significant pressure was exerted on aluminum prices in the short term. According to SMM statistics, as of May 6, the inventory of aluminum ingots at major domestic consumption hubs stood at 636,000 mt, an increase of 22,000 mt from before the holiday (April 30) and a decrease of 142,000 mt YoY, remaining at a relatively low level compared to the same period in the past three years. In terms of outflows from warehouses, the total outflows of aluminum ingots in China during the holiday week (April 29-May 6) amounted to 99,000 mt, an increase of approximately 10,000 mt YoY, showing a commendable performance. According to SMM, the overall inventory buildup in the Gongyi area after the holiday was significantly lower than pre-holiday expectations, but the current volume of goods in transit remained relatively large, and there was a possibility that some goods were backlogged at platforms. Meanwhile, due to the mediocre performance of downstream consumption, overall outflows from warehouses in the Gongyi area were relatively low before and after the Labour Day holiday. Attention still needs to be paid to the risk of periodic inventory buildup in the Gongyi area after the holiday. In the Wuxi area, arrivals were lower than pre-holiday expectations, and the current volume of goods in transit remained relatively moderate. It is expected that the subsequent inventory pressure will be relatively small. In the Foshan area, arrivals were also slightly lower than pre-holiday expectations, but the actual arrival situation still needs to be further assessed based on the arrivals over the next few days and the weekend.

Overall, during the Labour Day holiday, the performance of domestic aluminum ingot inventory was slightly better than expected, with inventory buildup generally manageable, and no significant pressure was exerted on aluminum prices in the short term after the holiday. However, the market's focus is on the post-holiday consumption and outflows from warehouses. Currently, it is a critical stage of transition between the low and peak seasons. After the first inventory buildup in domestic aluminum stocks since March, will it evolve into the beginning of a continuous inventory buildup trend? Can the inventory data this Thursday and next Monday prove the resilience of domestic aluminum consumption and bring unexpected surprises to the market? All these questions require time to observe. For the time being, SMM still maintains a relatively optimistic outlook, expecting that domestic aluminum ingot inventory will continue the trend of steady and slight decline in the first half of May, operating within the range of 600,000-680,000 mt.

In terms of aluminum billet inventory, affected by the holiday, according to SMM statistics, as of May 6, the aluminum billet inventory at major domestic consumption hubs reached 166,500 mt, an increase of 15,500 mt compared to pre-holiday levels (April 30), but still a slight decrease of 2,100 mt YoY. Pre-holiday domestic aluminum billet inventory benefited from the improvement in downstream building profile order starts and production, with the rigid demand for aluminum billets showing a marginal increase. Coupled with a significant pullback in aluminum prices compared to the previous period, the production enthusiasm in the end-use market improved, driving accelerated inventory de-stocking, which had remained at a low level for the same period over the past three consecutive weeks. Meanwhile, during the concentrated procurement window period before Labour Day holiday, the in-plant inventory of aluminum billet manufacturers remained at a low level, and market suppliers also actively lowered prices before the holiday to accelerate the outflows from warehouses. With fewer arrivals and sustained increases in outflows from social warehouses, the decline in inventory levels intensified. However, based on outflow data from before and after Labour Day holiday, aluminum billet outflows from warehouses were 42,600 mt from April 29 to May 6, a decrease of 9,300 mt YoY. As the peak season gradually transitions to the off-season, the resilience of downstream aluminum billet consumption in China has faced certain challenges. Post-holiday aluminum billet inventory may face the risk of short-term inventory buildup due to increased arrivals at social warehouses as manufacturers maintain normal production during the holiday. SMM expects aluminum billet inventory to fluctuate between 150,000-200,000 mt. Whether an inventory buildup trend will form depends on close monitoring of the sustainability of consumption post-Labour Day holiday.

On the demand side of aluminum billets, the overall operating rate of China's domestic aluminum extrusion industry fell by 0.5 percentage points WoW to 59% in the past week. Observing by sector: In the building materials sector, enterprises reported that the decline in the real estate market had slowed down, with sales showing a rebound trend. The transmission effect of supportive real estate policies was gradually becoming apparent, and infrastructure orders in second- and third-tier cities maintained steady growth. Specifically, orders for curtain walls and doors and windows in central China were saturated. Some enterprises in Shandong and surrounding areas indicated that they would maintain normal production during the Labour Day holiday, with the current orders on hand for building materials already exceeding those for industrial materials. Leading enterprises in the building materials sector in South China reported that orders for building materials had remained stable since the beginning of the year, and they continued to implement a produce-based-on-demand strategy this week. They had basically not stocked up on raw materials before the holiday, only maintaining inventory levels necessary for safe production. In terms of automotive extrusion, influenced by the insufficient momentum of enterprises that had previously concentrated on production, industry orders showed a downward trend, with new orders being relatively limited. This week, the operating rate in this sector dropped back slightly. In the PV extrusion sector, influenced by the uncertainty during the policy transition period, current module enterprises' production scheduling strategies had become cautious. According to the SMM survey, due to the mismatch between the module production cycle and the grid connection deadline, current production orders could not be completed and connected to the grid before the May 31 period. Coupled with the fact that follow-up policy transition documents had not yet been issued, downstream module producers generally lowered their order demand expectations for May by 10%. This week, the operating rates of top-tier enterprises in the PV extrusion sector slightly declined, mainly shifting to execute production schedules for newly signed orders in May. Relevant enterprises had no plans to halt production during the Labour Day holiday and maintained normal production. SMM will continue to track the actual implementation of orders in various sectors.