Approaching the Low Inventory Level of the Year: When Will the Inflection Point of Domestic Aluminum Ingot Inventory Buildup Appear? [SMM Analysis]

According to SMM statistics, as of June 19, the inventory of aluminum ingots in major domestic consumption areas stood at 449,000 mt, a decrease of 9,000 mt compared to Monday this week and a decrease of 11,000 mt compared to Thursday last week. On a YoY basis, it decreased by 307,000 mt compared to the same period last year and by 69,000 mt compared to the same period in 2023, remaining at a low level compared to the same period in the past three years and just shy of the year's low inventory level of 440,000 mt. The supportive effect of low inventory on aluminum prices remains strong.

SMM recently conducted a series of surveys on inter-regional transfer situations and inventory levels in major domestic consumption areas, summarized as follows: By mid-June, the overall destocking of aluminum ingots in China slowed down this week. At the beginning of the week, influenced by inter-regional transfers driven by regional price spreads and concentrated arrivals over the weekend, there was a significant increase in arrivals in east China's Shanghai, Wuxi, and central China's Gongyi areas over the weekend. Moreover, downstream consumption in the Gongyi area was suppressed by high aluminum prices, affecting outflows from warehouses, making short-term inventory buildup inevitable. Meanwhile, inventory in south China's Foshan area dropped sharply, while inventory in other domestic regions remained largely stable. By mid-week, according to SMM, although inter-regional transfers remained active in the Foshan area due to price spread arbitrage, driving destocking, the recent slight narrowing of the Shanghai-Guangdong price spread and the expectation of further narrowing made it difficult to cover the trucking costs between the two regions, resulting in a decrease in the direct transfer of goods from Foshan to Wuxi warehouses after outflows. Recently, more trucking has been directed straight to downstream areas in other parts of east China, particularly areas south of Wuxi (such as Ningbo and Nanchang, which also incur certain costs when shipping from Wuxi's social inventory, making direct trucking from Foshan's social inventory more cost-effective recently), enabling inventory in the Wuxi area to resume destocking. Notably, the Shanghai area has experienced continuous and significant inventory buildup over the past week due to concentrated arrivals of imported goods. In the Gongyi area, it is understood that arrivals from north-west China and other regions have been generally normal recently, with no significant increases observed. Additionally, after spot premiums pulled back mid-week, downstream cargo pick-up increased, and inventory levels remained stable mid-week. Inventory in other regions also remained largely stable.

SMM believes that in June, the domestic proportion of liquid aluminum is still expected to increase slightly. Supported by the overall low level of domestic casting ingot production in the short term, inventory is expected to continue its destocking trend. However, due to the expectation of a slight increase in casting ingot production at a small number of aluminum smelters, there have been signs of a slight increase in supply and shipments from the north-west China region recently. Additionally, due to price spreads and inter-regional transfers, the increase in arrivals this week has already exerted significant pressure on east China, potentially alleviating the tight supply situation in the market. Looking ahead, the recent high and strong performance of aluminum prices is expected to inevitably have a certain inhibitory effect on domestic demand during the off-season. Outflows from warehouses are expected to weaken, leading to slowing pressure on overall domestic destocking in the second half of the month. Close attention should be paid to whether the annual low of 440,000 mt can be successfully refreshed before the signal of a shift from off-season to inventory buildup becomes clear (for the time being, SMM suggests focusing on the key time point from late June to early July) to determine the next direction of market sentiment.