Downstream operating rate has not picked up, making destocking of aluminum billets still challenging

As of June 20, domestic aluminum billet social inventory was 151,800 mt, down 11,000 mt WoW and down 5,500 mt from Jun 17, still at a high level for the same period in nearly four years, narrowing the YoY gap to 13,800 mt. Pick-up from warehouses of aluminum billets slightly stabilized, up 1,400 mt WoW to 42,400 mt. Despite the destocking of domestic aluminum billets after the weekend, compared to aluminum ingot inventory, the destocking of aluminum billets was mainly due to decrease in arrivals. From the recent performance of downstream operating rates, conversion margins, and market feedback, despite a significant drop in aluminum prices, the aluminum billet market remains relatively weak in the off-season, affecting the shipment willingness of billet factories. In south China, arrivals of aluminum billets decreased by about 6,000 mt WoW, while cargo pick-up stabilized, showing weak supply and demand in the off-season. Inventory performance in other regions stabilized.

Nevertheless, SMM believes that the stabilization of domestic aluminum billets pick-up from warehouses is still a positive signal for the market. Thanks to the recent destocking in south China, local conversion margins continued to rise. Foshan φ120 aluminum billet conversion margins continued to rise to 250 yuan/mt, up 90 yuan/mt WoW. Inventory performance in the other two regions was mediocre, with Nanchang and Wuxi φ120 aluminum billet conversion margins reported at 90 yuan/mt and 200 yuan/mt, down 10 yuan/mt and 30 yuan/mt respectively. As the inventory has been declining for a long time, SMM estimates that due to the dual impact of increased supply within the month and weak downstream demand in the off-season, the difficulty of domestic aluminum billets destocking will remain high, and it is expected that the inventory in June will fluctuate between 150,000 mt and 200,000 mt.

The operating rate of leading domestic aluminum extrusion producers remained flat WoW, recording 54%. By sector, construction aluminum extrusion entered the traditional off-season, with the overall operating rate going down. However, some enterprises in east China received renovation orders, mainly due to the recent pullback in aluminum prices, which slightly improved downstream project sentiment. Industrial aluminum extrusion has also entered the off-season, with both photovoltaic and automotive extrusion showing weakening trends. However, demand still maintained positive growth. As we enter the traditional off-season, aluminum extrusion order volumes and operating rates are seasonally adjusting, and it is expected that June will see a weak performance.