The operating rate of downstream aluminum enterprises declined again this week[SMM Analysis]

This week, the operating rate of the aluminum processing industry fell by another 0.1 percentage points WoW to 58.6%. The operating rates of downstream aluminum sectors showed divergence but were generally under pressure. Specifically, by sector: the operating rate of primary aluminum alloy producers rose slightly to 54.0%, supported by production cuts in aluminum billets and liquid aluminum allocation, but the increase was constrained by rising aluminum prices and high-temperature holidays, with expectations of remaining in the doldrums; the operating rate of aluminum plate/sheet and strip producers fell to 63.2%, dragged down by weak demand, high aluminum prices, and the risk of power rationing due to high temperature, with further downside room; the operating rate of aluminum wire and cable producers dropped to 61.6%, due to slow orders from State Grid, semi-shutdowns of small and medium-sized enterprises caused by high temperature, and high aluminum prices suppressing consumption, with a focus on low-level operation in the short term; the operating rate of aluminum extrusion producers remained unchanged at 49.5%, with the automotive sector holding steady, while orders from PV and construction sectors were not ideal, requiring attention to the subsequent landing of orders; the operating rate of aluminum foil producers stabilized at 69.6%, facing weak demand during the off-season and low processing fees, with a short-term downward trend expected to continue; the operating rate of secondary aluminum alloy producers temporarily held steady, with large producers remaining relatively stable while many small and medium-sized producers cut production, dragged down by raw material shortages and weak off-season demand, with subsequent operating rates expected to decline weakly. Overall, in the short term, the aluminum industry continues to be affected by multiple negative factors such as insufficient orders during the traditional off-season, high aluminum prices, and high-temperature weather, with the operating rate expected to maintain a downward trend. SMM expects that the weekly operating rate of downstream aluminum processing may fall by another 0.1 percentage points WoW to 58.5% next week.

Primary Aluminum Alloy: This week, the operating rate of the primary aluminum alloy industry rose slightly by 0.2 percentage points MoM to 54.0%. The previously weak and stable operating performance of primary aluminum alloy in mid-July improved. Despite July being the traditional off-season for aluminum processing, due to the more sluggish performance of the aluminum billet market compared to primary aluminum alloy, the scale of production cuts by aluminum billet producers is intensifying. The operating rate of primary aluminum alloy in July is expected to receive structural support. Under the requirement of liquid aluminum alloying, due to the more stable domestic demand for primary aluminum alloy, surplus liquid aluminum is mostly redirected to the production of primary aluminum alloy. The operating rate of domestic primary aluminum alloy in July is expected to rebound against the trend, but the extent of the rebound may be partially limited by the high-temperature holidays of enterprises in the next two months. It is worth noting that due to the renewed strong rise in aluminum prices in the mid-to-late week, it partially suppressed downstream demand performance, and some manufacturers adjusted their production plans, resulting in a slight reduction in the estimated monthly production. Meanwhile, due to the heavy fog of the tariff war, downstream export expectations remain unclear. SMM expects that the industry will continue the game pattern of "liquid aluminum allocation dominating and aluminum prices suppressing demand" in the short term, and the operating rate may exhibit a weak and stable trend.

Aluminum Plate/Sheet and Strip: This week, the operating rate of leading enterprises in the aluminum plate/sheet and strip industry fell by 0.6 percentage points MoM to 63.2%. Overall demand in the aluminum plate/sheet and strip industry remained weak during the week, with aluminum prices still at highs, downstream cargo pick-up being passive, and wait-and-see sentiment remaining strong. The continuous weakening of demand in the traditional off-season, coupled with the high aluminum prices, suppressed the operating performance of the aluminum plate/sheet and strip industry. On the other hand, with the arrival of high-temperature weather, although no actual feedback on production cuts due to power rationing due to high temperature from aluminum plate/sheet and strip enterprises in various regions has been received yet, it may still deal a heavy blow to the already dismal operating rate. With high finished product inventories, the deepening of the traditional off-season, high aluminum prices, and the intensified risk of production cuts due to power rationing during high-temperature weather, the operating rate of aluminum plate/sheet and strip is expected to continue to decline in the short term.

Aluminum Wire and Cable: This week, the operating rate of leading enterprises in the aluminum wire and cable industry was 61.6%, down 0.2% from last Thursday. The industry's operating rate is still in a downward phase, with no significant change observed yet. According to the SMM survey, the matching speed of new orders from the State Grid is still relatively slow, and order expectations are mainly weakening. Enterprises in Henan and Jiangsu regions have all stated that they are currently focusing on defensive production, reducing raw material and finished product inventories to alleviate the pressure on capital operation. Meanwhile, due to the weakness of orders and the impact of high-temperature weather on manufacturers' operations, many small and medium-sized enterprises have stated that they are in a semi-shutdown state, with production shifts reduced. Although the center of aluminum prices pulled back slightly in the first half of the week, releasing some rigid demand buying sentiment in the short term, the current aluminum prices are still fluctuating at highs, suppressing downstream consumption and operating conditions, with expectations not being optimistic. Overall, the aluminum wire and cable industry still faces downward pressure on short-term operations. It is expected that the operating rate will remain low in July, and attention needs to be paid to whether the matching status of power grid orders in August can reopen the industry's concentrated delivery cycle in the short term. Aluminum Extrusion: This week, the overall operating rate of the extrusion industry stood at 49.5%, maintaining the level of the previous week. By sector: In automotive extrusion, the situation of new orders was average, and enterprises continued to adopt a purchasing-as-needed strategy, with no signs of raw material hoarding. The operating level remained the same as the previous period. The operating rate of PV extrusion declined. According to the SMM survey, some small and medium-sized enterprises in Anhui reported that due to poor profitability of PV extrusion, they were gradually cutting production. Enterprises in Fujian reported that they were currently only fulfilling orders for brackets in PV extrusion. In architectural extrusion, according to the SMM survey, most enterprises relied on existing orders to maintain production. Leading enterprises in east China reported that due to domestic real estate restrictions, the situation of new orders in July was not ideal. SMM will continue to track the progress of terminal order fulfillment and the execution of export projects.

Aluminum Foil: This week, the operating rate of leading aluminum foil enterprises was recorded at 69.6%. The overall demand in the aluminum foil market remained weak, and the industry's operating rate continued to run at a low level. By product: The processing fee for packaging foil temporarily halted its decline, with the price of double-zero 6 aluminum foil ranging around 5,800-6,000 yuan/mt, with no possibility of a short-term increase. The processing fee for hydrophilic foil declined again compared to the peak season, with the operating range being 3,700-4,000 yuan/mt. The "volume discount" strategy was difficult to sustain. During the traditional consumption off-season of July-August, there was no hope for a recovery in end-use demand. It is expected that the operating rate of the aluminum foil industry will continue to decline in the short term.

Secondary Aluminum Alloy: This week, the operating rate of leading secondary aluminum enterprises remained stable at 53.6%. The trend of operating rates for secondary aluminum enterprises continued to diverge in July. Large factories, relying on stable orders and the advantage of delivery brands, maintained relatively stable production or even expected a slight increase in production, driven by the active procurement of ADC12 by futures-cash traders for futures-cash arbitrage. However, most secondary aluminum plants faced significant production pressures. Firstly, the circulation of aluminum scrap both domestically and overseas tightened during the week, increasing the difficulty for enterprises in procuring raw materials, with fierce competition for "scrap" in the market. Secondly, the effect of the traditional off-season continued to manifest, with weak demand performance. Due to insufficient orders and a shortage of raw materials, some enterprises initiated production cuts or shutdowns at the beginning of July, dragging down the overall operating rate. In the short term, the industry's operating rate is expected to decline mainly.