Weak Outflows and Mediocre Performance of Aluminium Inventory : Will September Bring a Breakthrough? [SMM Analysis]

SMM, September 2: Although mid-August saw a turning point in domestic aluminum ingot destocking, the process has not been smooth since late August, and the inventory has yet to fall below 800,000 mt. According to SMM statistics, as of September 2, 2024, the total social inventory of aluminum ingots was 810,000 mt, with 684,000 mt of domestic circulating aluminum inventory, a slight decrease of 1,000 mt WoW but an increase of 291,000 mt YoY. Outflows from warehouses last week decreased by 900 mt WoW to 102,800 mt. SMM believes that despite the aluminum price surge and subsequent decline last week, it did not effectively stimulate aluminum ingot outflows. Instead, high inventory levels, a sluggish construction materials market, and successive negative events have made the spot market more cautious and hesitant. The market's confidence in peak season consumption was challenged at the start of September, especially in South China, which has been significantly affected recently.
By region, although there were no significant changes in inventory levels from mid-week to now, some trends can still be observed from the changes in inventory and outflows. Thanks to the recovery signs and positive expectations for industrial extrusion and aluminium plate/sheet, strip and foil during the peak season, Wuxi and Gongyi saw improved outflows last week. Wuxi's outflows increased by 1,300 mt last week, resulting in a 1,000 mt decrease in inventory WoW. Gongyi experienced concentrated procurement last Friday, with outflows rising by 4,100 mt, leading to a 3,000 mt decrease in inventory WoW, indicating a tightening spot market. In contrast, Foshan's spot trading atmosphere remained cold. Despite reduced arrival pressure by the weekend, last week's outflows continued to decline, decreasing by nearly 5,000 mt, resulting in a 2,000 mt inventory increase in South China. This inventory pressure has widened the price spread between Guangdong-Shanghai and Guangdong-Henan.
Overall, since August, domestic casting ingot production has declined. Entering September, the traditional peak season for aluminum processing has driven a continuous increase in the operating rate of intermediate products like aluminum billets. The casting ingot production is expected to continue declining in September, easing supply-side pressure. On the demand side, aluminium plate/sheet, strip and foil, and industrial extrusion have gradually emerged from the off-season, initially supporting aluminum ingot consumption. Although there is still a consumption gap in construction materials, aluminum ingots may be less affected than aluminum billets. Therefore, despite multiple factors making rapid destocking of domestic aluminum ingots challenging in the short term, with inventory still above 800,000 mt, SMM expects that under the destocking cycle, domestic aluminum ingot inventory will gradually fall below 800,000 mt in the first half of September and will generally range between 700,000-800,000 mt throughout the month, with an overall decrease to the safe threshold of 750,000 mt.
Regarding aluminum billet inventory, the current domestic aluminum billet inventory has been on a downward trend for nearly half a year. Factors such as controllable dynamic pressure on primary aluminum billets supply, significant YoY reduction in remelted billet supply, and a further decline in the proportion of aluminum billet storage have driven the inventory down from the annual high of nearly 300,000 mt after the New Year to the annual low of 110,000 mt by the end of August. For most of this year, aluminum billet destocking has been significantly stronger than aluminum ingots. However, on the first trading day of September, domestic aluminum billets saw an inventory increase, signaling potential challenges for future inventory performance. According to SMM statistics, as of September 2, domestic aluminum billet social inventory was 114,500 mt, an increase of 4,400 mt WoW and 34,500 mt YoY, though still slightly below the same period in 2022. Last week's aluminum billet outflows decreased by 2,700 mt WoW to 38,600 mt, with all regions except Wuxi experiencing outflow declines and slight inventory increases.
Overall, the supply-side pressure for aluminum billets may increase as the "September-October peak season" approaches. SMM's latest survey shows that in the last week of August, the operating rate of leading domestic primary aluminum billet enterprises reached 71.32%, an increase of over 2% WoW. However, on the demand side, the outlook for construction extrusion remains bleak, with enterprises holding a pessimistic view of the future. The current mismatch between supply and demand suggests a need to guard against the risk of further inventory increases for domestic aluminum billets. It is expected that aluminum billet inventory will remain around 100,000-150,000 mt throughout September.
Summary: SMM believes that the current aluminum billet market performance is still less than ideal, with confidence in consumption slightly lacking. The supply side, social inventory, and processing fees are all anxiously awaiting the direction indicated by the "September-October peak season." The downstream consumption performance during the traditional peak season will be crucial in breaking the current situation. Industrial extrusion has initially provided support, but gaps remain. Whether the construction materials industry can shake off its previous sluggishness in September and bring confidence to the market may determine the overall direction of the aluminum billet industry in Q4.