As the off-season deepens, the proportion of liquid aluminum continued to decline

SMM, December 18:
As of Thursday this week, SMM data showed that the proportion of liquid aluminum in China decreased by 0.24 percentage points WoW to 76.34%. So far, the weekly proportion of liquid aluminum in China has declined for six consecutive weeks, dropping by a cumulative 1.41 percentage points since early November.

From an absolute value perspective, the proportion of liquid aluminum remains at a five-year high, primarily due to:
1) Under the promotion of the policy for local alloying of liquid aluminum, supporting capacity around aluminum smelters has gradually increased, leading to a decline in the proportion of direct aluminum ingot purchases by downstream sectors;
2) The Chinese New Year holiday falls later this year, and there is still some time before downstream companies begin their holiday breaks, with most maintaining relatively normal production;
3) Automakers’ push for annual targets at year-end, along with support for primary aluminum demand from the automotive sector, has limited the decline in the proportion of liquid aluminum.

The persistently high proportion of liquid aluminum, relatively limited ingot casting, coupled with aluminum ingot accumulation in Xinjiang, have led to significant destocking of aluminum ingot inventories in social warehouses, providing fundamental support for aluminum prices to fluctuate at highs. However, from a consumption perspective, as the off-season deepens, downstream operating rates have marginally weakened, and the proportion of liquid aluminum continues to decline. Additionally, high aluminum prices have suppressed downstream cargo pick-up demand, with spot transactions remaining weak. As of December 18, spot discounts in east China expanded to 140 yuan/mt.

In the near term, on the supply side, as newly commissioned capacity continues to ramp up, weekly aluminum production is expected to increase slightly. Shipment disruptions in Xinjiang eased this week, but attention should be paid to concentrated arrivals of aluminum ingots next week. Traders are expected to continue shipping goods for year-end payments. On the demand side, downstream operating rates are expected to continue weakening marginally, and the proportion of liquid aluminum is likely to remain in the doldrums. With supply increasing and demand weakening, fundamental support for high aluminum prices is expected to decline, and spot premiums/discounts are likely to remain under pressure in the short term.