How Will Domestic Aluminum Inventory Develop After Destocking Surpasses the 600,000 mt Mark? [SMM Analysis]

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In May, domestic aluminum ingot inventory successfully surpassed the 600,000 mt mark, demonstrating strong resilience in domestic aluminum consumption during the critical transition phase between the off-season and peak season, providing crucial support for the recent continuous upward trend in aluminum prices.According to SMM statistics, as of May 15, the inventory of aluminum ingots at major domestic consumption hubs stood at 581,000 mt,
down 20,000 mt from Monday this week, down 39,000 mt from Thursday last week, and down 166,000 mt YoY, remaining at a low level compared to the same period in the past three years.

However, it is worth noting that aluminum prices have rebounded and risen continuously in mid-May, with prices breaking through the 20,000 yuan/mt mark, which has somewhat suppressed downstream restocking demand. There have been clear signs of a significant decline in domestic outflows from warehouses in the past week, which may gradually return to off-season levels. By region, the weak performance of spot aluminum ingots in South China persisted during the week. As aluminum prices continued to rise, suppliers increased their selling efforts, resulting in relatively abundant supply compared to the other two regions. Relatively high-priced cargoes received little attention, and discounts showed signs of widening. According to an SMM survey, a certain aluminum smelter in south-west China recently increased its casting ingot ratio, considering regional price differentials, leading to a decrease in casting ingot volume on a WoW basis. Additionally, due to the price advantage in the spot market of Chongqing and other south-west regions, some cargoes were diverted, limiting the arrival pressure in South China in the short term. However, as another aluminum smelter begins capacity replacement, primarily focusing on casting ingots, arrivals are expected to increase in the coming period. Due to continuous inventory destocking and relatively low short-term arrivals based on in-transit volumes, spot premiums/discounts in east China have risen significantly recently, with the Shanghai-Guangdong price spread exceeding 100 yuan/mt. In Gongyi, premiums/discounts have also remained strong recently. However, due to increased shipments from a certain aluminum smelter in north-west China, Gongyi may face some inventory pressure in late May. Overall, despite the rapid destocking in both regions recently, there is an expectation of a significant increase in arrivals in east China and Gongyi by month-end, based on price differential analysis.

SMM expects that despite relatively low arrivals in mid-to-late May across the country, which will temporarily maintain the destocking trend in domestic aluminum ingot inventory in the short term, the recent low point may be around 550,000 mt. However, under normal circumstances, due to the overall smooth domestic transportation in May and the expected weakening of outflows from warehouses during the off-season, the circulation at major domestic consumption hubs is expected to gradually ease from late May to early June.SMM predicts that domestic aluminum ingot inventory may remain in the 550,000-600,000 mt range by the end of May. However, it is still necessary to closely monitor the positive or negative impacts of macro factors, such as the progress of Sino-US tariff negotiations, on downstream consumption and outflows from warehouses to confirm the key period for the subsequent transition to inventory buildup in domestic aluminum ingot inventory.

Regarding aluminum billet inventory, according to SMM statistics, as of May 15, the inventory of aluminum billets at major domestic consumption hubs stood at 138,200 mt, down 14,500 mt from Monday and 55,000 mt YoY, still at a low level compared to the same period in the past three years.After falling below 150,000 mt, aluminum billet inventory has maintained a downward pressure, approaching the 100,000 mt inventory mark. According to outflow data, from May 7 to May 11, domestic aluminum billet outflows from warehouses totaled 46,600 mt, an increase of 4,000 mt from the previous period but a decrease of 9,100 mt YoY. Outflows from warehouses of aluminum billet inventory have shown signs of improvement after the holiday, but performance still lags behind last year, indicating average trading performance in warehouse storage in the current market, with an increased proportion of truck-transported cargoes, resulting in fewer warehouse arrivals and continuous inventory destocking. Despite the current resilience in consumption, high processing fees, and optimistic order performance from billet mills, coupled with the easing of Sino-US relations to some extent stimulating end-use consumption, further driving inventory destocking. Under the backdrop of better-than-expected demand in off-season, aluminum billet mills producing based on sales have maintained low in-plant inventory, with truck-transported cargoes dominating the market. Additionally, combined with the recent substitution effect of aluminum rods, aluminum billet supply has tightened, leading to continuous destocking of aluminum billet inventory.SMM expects that aluminum billet inventory will have further downside room in mid-to-late May, and it is still necessary to closely monitor consumption and arrival situations subsequently.

On the demand side of aluminum billets,the national operating rate of extrusions declined slightly by 1 percentage point WoW to 56.5% in the past week.By sector, benefiting from the incremental financial policy support from the People's Bank of China and the National Financial Regulatory Administration for the real estate market, the trend of the industry halting its decline and stabilizing has been further consolidated. Infrastructure orders from leading building materials enterprises in Shandong and central China have continued to warm up, supporting a slight increase in the operating rate of building materials. In terms of raw material procurement, despite the fluctuating aluminum prices, enterprises' willingness to stockpile has not significantly weakened. The industrial materials sector has shown differentiation, with leading enterprises in the PV frame sector experiencing only a slight decline in operating rates, still maintaining production schedules based on order rhythms. However, some outsourcing enterprises in east China and Henan have reported a sharp decline in PV orders, with operating rates maintained only in the 40%-50% range. It is worth noting that a certain newly added home appliance extrusion enterprise in east China stated that its capacity is still in the ramp-up stage, with current orders not yet affected by tariff policies and no signs of concentrated rush exports. Some leading automotive extrusion enterprises in east China reported stable operating rates this week, with insufficient momentum for new orders. Some enterprises have shown a significant increase in sensitivity to aluminum price fluctuations, indicating the need to reduce costs from the source to maintain survival. In terms of exports, a large industrial materials enterprise in east China reported stable export orders, primarily due to the limited short-term impact of tariff fluctuations on the export of large components such as high-speed rail, aircraft, and automobiles. SMM will continue to follow up on the actual execution of orders in various sectors.

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