Domestic aluminum ingots still failed to destock in July, while aluminum billet inventory finally shook off the unfavorable position of the same period. [SMM Analysis]

In July, domestic aluminum ingots still failed to destock. On July 1, 2024, SMM reported a total social inventory of aluminum ingots at 769,000 mt, with the amount for sale at 643,000 mt, up 6,000 mt from a week ago. Since June 20, there has been continuous accumulation for over 10 days, with a total slight increase of 13,000 mt. YoY. Domestic aluminum ingot inventory was still 263,000 mt higher YoY, and 35,000 mt higher compared to the same period in 2022. Domestic aluminum ingot pick-up from warehouses decreased by 8,900 mt WoW to 105,800 mt last week.

By region, over the weekend, the three major consumption areas all saw slight inventory accumulation, but the spot market conditions varied. In south China, last week's pick-up from warehouses slightly decreased by 1,700 mt to 22,900 mt, while arrivals increased by 7,600 mt to 30,800 mt. However, according to an SMM survey, the spot market in south China experienced subtle changes since the middle of last week: due to the Guangdong-Shanghai price spread widening to over 200 yuan/mt, there was frequent transport of goods from south China to east China. Together with the large spot discounts and the stimulation from the Guangdong-Shanghai price spread, the pick-up of aluminum ingots from warehouses in south China slightly improved in the latter part of last week, with stable inventory levels and a temporary tightening of available supplies. There were signs of a rebound in spot discounts, with pick-up from warehouses increasing by nearly 3,000 mt over the weekend, while arrivals slightly decreased by 1,600 mt. Currently, the Guangdong-Shanghai price spread narrowed. Consequently, the spot market in Wuxi has been under pressure, closely related to inventory levels: last week's pick-up from warehouses in Wuxi decreased by 3,600 mt to 40,500 mt, and with the arrival of transported goods, arrivals remained high throughout the week, leading to a slight inventory accumulation of 3,000 mt over the weekend to 260,000 mt. In Gongyi, last week's pick-up from warehouses decreased by 4,400 mt to 35,200 mt. After the pick-up from warehouses weakened, the destocking did not continue, resulting in a slight inventory accumulation of 3,000 mt over the weekend to 84,000 mt.

Compared to the same period in the past two years, and considering the gradually increasing proportion of aluminum liquid domestically, SMM believes that the current aluminum ingot inventory at the beginning of July remains at a relatively high level. The ample supply of aluminum ingots in the market is also the reason why aluminum prices have difficulty resuming a premium after falling. Regarding the future trajectory of domestic aluminum ingot inventory, although destocking appears weak and somewhat fluctuating, the conditions for a sustained inventory accumulation have not yet formed. In July, the overall domestic aluminum ingot inventory will still drop slowly, with the inventory expected to fluctuate between 700,000-800,000 mt in July.
At the beginning of July, there was good news regarding domestic aluminum billet inventory. Due to a slightly faster-than-expected destocking rate over the past half month, the current aluminum billet inventory decreased by 5,000 mt YoY, finally shaking off the unfavorable position of the past four years' high levels. According to the latest statistics from SMM, as of July 1, domestic aluminum billet social inventory stood at 140,700 mt, down 2,800 mt WoW; however, pick-up from warehouses of aluminum billet significantly declined by 7,400 mt WoW to 38,600 mt. Therefore, the destocking of aluminum billet was significantly affected by the overall lower domestic arrivals.

Based on downstream operating rates, conversion margins, and market feedback, after spot aluminium prices fell to around 20,000 yuan/mt, the overall demand in the domestic aluminium billet market remained relatively weak during the off-season, impacting the willingness of billet factories to ship. This was particularly evident as the Guangdong-Shanghai price spread once expanded to over 200 yuan/mt last week, leading to continued low arrivals of aluminium billets in south China. Benefiting from weak aluminium prices and good destocking performance, conversion margins of aluminium billets in south China have been rising over the past month. Currently, the conversion margins of φ120 billets in Foshan rose to 390 yuan/mt, up 460 yuan/mt from the negative conversion margins at the end of May. However, the sustainability of destocking after the rebound in conversion margins needs further observation. Over the weekend, the pick-up from warehouses of aluminium billets in south China decreased significantly by 5,200 mt WoW, a drop of over 50%. In east China, the inventory in Wuxi and Nanchang remained relatively stable. In Wuxi, the supply of aluminium billets was strong while demand was weak, making it difficult to maintain high conversion margins. In Nanchang, although conversion margins did not improve, the pick-up from warehouses turned better, leading to a slight reduction in inventory.

SMM believes that the continued destocking of domestic aluminum billet since mid-June resulted in a cumulative decrease of nearly 30,000 mt over the past three weeks, effectively boosting market confidence. In July, with both supply and demand remaining weak, the overall domestic aluminum billet inventory is expected to remain at low levels, with inventory in July anticipated to fluctuate between 130,000-180,000 mt.