Downstream Stocking in Aluminium Market Was Modest before the National Day Holiday, Post-Holiday Aluminium Ingot to Accumulate Significantly due to Longer Break by Small and Medium-Sized Downstream Enterprises

SHANGHAI, Sep 30 (SMM) - According to SMM survey on the domestic major aluminium processing enterprises, their operating rates will vary during the National Day holiday, depending on their orders. Most of the small and medium-sized enterprises will close for 3-7 days for the holiday, while larger ones will take a shorter or even no break.   In terms of sectors, enterprises in the aluminium plate/sheet, strip, foil and primary aluminium alloy sectors will maintain stable operations during the holiday, while those in the aluminium extrusion and secondary aluminium alloy sectors will generally take a break. Lower aluminium prices drove downstream enterprises to stock up ahead of the holiday, but most restocked only as needed. The aluminium ingot social inventories across China’s eight major markets totalled 619,000 mt as of September 29, a drop of 47,000 mt from a week ago and 33,000 mt from this Monday September 26. The figure was also 198,000 mt lower than a year ago and 57,000 mt less than that at the end of August. The domestic aluminium billet inventory dropped 26,000 mt from a week ago to 80,100 mt as of September 29.

Aluminium extrusion: Aluminium extruders will generally take a longer break during this year's National Day holiday than in previous years. Most of the non-production staff will have 5-7 days off, while production staff have 3-5 days off. Even several large aluminium extruders will be shut down completely during the week-long holiday. The main reason is falling orders from downstream customers. It’s worth noting that extruders whose customers are new energy vehicle manufacturers will maintain normal production during the holiday due to the booming NEV market. The pre-holiday stocking was limited and driven primarily by rigid demand. As a result, the shipments of aluminium billets recovered only slightly. 

Aluminium plate/sheet, strip and foil: The downstream demand has improved when compared with July-August due to the arrival of the peak season, but was much less strong than in the same period of previous years. Large enterprises will be able to produce normally during the holiday on the back of sufficient orders, while some small and medium-sized enterprises will take a 3-7 day break due to poor orders. Aluminium prices once fell below 18,000 yuan/mt, but then rebounded. Upcoming holiday and bullish sentiment on aluminium prices drove some enterprises to ramp up their purchases.  

Primary aluminium alloy: Affected by the pandemic, chip shortages, and economic downturn, primary aluminium alloy factories generally reported sluggish production and sales. However, the fact that most primary aluminium alloy enterprises are located adjacent to aluminium smelters or have self-supplied aluminium liquid for production means that shutting down for the holiday will cost them tremendously. Therefore, they would rather build up their inventory of finished products than stop their production during the holiday. 

Aluminium wire and cable: Most of the large aluminium wire and cable enterprises will maintain normal production during the holiday, except for a break by non-production stuff, hence they stocked up ahead of the holiday. In contrast, small and medium-sized enterprises will generally take 3-5 days of break due to insufficient orders. Small and medium-sized enterprises restocked only as needed due to bearish sentiment on post-holiday aluminium prices. 

Secondary aluminium alloy: Most of the secondary aluminium alloy plants will take a 3-4 day break, while the rest will be shut down for 0-7 days. Those who will produce non-stop during the holiday will slow down their production. Downstream die-casting enterprises mostly took a wait-and-see stance in response to limited orders and volatile aluminium prices. Secondary aluminium alloy plants did not stockpile too much due to significant market fluctuations and aluminium scrap shortages.  

As the demand in this year’s peak season is less strong than in previous years, the aluminium ingot and billet markets are likely to see greater accumulation of social inventory after this year’s National Day holiday. Due to expanding output cuts in Yunnan, the operating aluminium capacity in China had dropped to around 40.4 million mt at the end of September and the domestic daily average aluminium output is estimated to have fallen to around 110,000 mt. Considering the conversion rate of aluminium liquid and the transportation cycle, it is expected that the domestic aluminium ingot social inventory may reach around 700,000 mt after the holiday. Given the stable production of aluminium smelters and shorter production period of downstream enterprises, the aluminium ingot social inventory will accumulate. SMM data showed that the social inventory climbed to 862,000 mt after last year’s National Day holiday and saw a cumulative increase of 185,000 mt in October last year.