Domestic aluminum ingot inventory remained weak over the weekend; inventory performance in June is not optimistic [SMM Analysis]

On June 3, 2024, SMM reported that the social inventory of aluminum ingots was 790,000 mt (the amount for sale stood at 664,000 mt), up 9,000 mt WoW. Two key data points need attention: (1) Domestic aluminum ingot inventory exceeded 200,000 mt for the first time compared to the same period last year, currently higher by 206,000 mt, and this gap continues to widen with no signs of narrowing; (2) The inventory gap compared to the same period in 2022 has narrowed to within 100,000 mt, decreasing by only 85,000 mt, and there is a possibility of surpassing in the future. Regarding cargo pick-up, last week, domestic aluminum ingot pick-up from warehouses fell below 100,000 mt again, reaching only 97,700 mt, down 4,600 mt WoW, marking a new low since the May Day holiday. It has been at a low level for the same period in the past five years.

In early June, domestic aluminum ingots are still unable to resume destocking, hindered by the continuous ample supply of aluminum ingots and weak cargo pick-up. The continuous accumulation of inventory has lasted for more than half a month, and the inventory performance is worrying. SMM believes that the aluminum inventory performance in June is unlikely to be optimistic. Currently, the performance of domestic aluminum ingot inventory can hardly support the fundamentals, and there is still an expectation of increased supply. It is expected that domestic aluminum ingots may find it difficult to resume a normal destocking pace in the short term, temporarily fluctuating around 750,000-800,000 mt.

Regarding aluminium billet inventory, the overall reduction in domestic aluminium billet supply led to destocking in May. But can this destocking continue into June? With the arrival of 5,200 mt of aluminium billets in South China over the weekend, more than doubling WoW, and an increase in arrivals in Wuxi, both regions saw a slight accumulation in inventory. According to the latest statistics from SMM, as of June 3, domestic aluminium billet social inventory was 162,600 mt, a decrease of 300 mt compared to last Thursday, but 21,300 mt higher YoY, still at a four-year high for the same period. At the beginning of June, aluminium billet destocking slowed down, with pick-up from warehouses also showing a significant decline. Last week, aluminium billet pick-up from warehouses fell by 6,700 mt WoW to 45,200 mt, reaching a near four-year low, which is clearly an unfavorable signal. Despite the pessimistic outlook in June and the continuous decline in aluminium billet inventory for a long time, SMM believes that domestic aluminium billets, benefiting from reduced supply and downstream rigid demand, are expected to see a stable to slight decline in overall inventory, with domestic aluminium billet inventory likely to drop to around 150,000 mt.

Last week, aluminium prices hit a new high for the year, but destocking still couldn't hide the downstream slump. The pick-up of aluminium billets from warehouses within the month were only supported by conversion margins. The sluggish end-user demand increasingly led to bargained down purchasing prices by extrusion companies. Due to the sharp rise in aluminium prices last Thursday, hitting a new high for the year, aluminium billet conversion margins in East China fell to a nearly three-year low. During the week, the φ120 aluminium billet conversion margins in three regions (Nanchang, Foshan, Wuxi) dropped to -200 yuan/mt, -70 yuan/mt, and -30 yuan/mt, with Foshan being just a step away from a new low. SMM expects that in the short term, as aluminium prices adjust, conversion margins are likely to rebound. As of June 3, the φ120 aluminium billet conversion margins in the three regions (Nanchang, Foshan, Wuxi) rebounded to -20 yuan/mt, 100 yuan/mt, and 180 yuan/mt, nearly a 200 yuan/mt rebound.

On the demand side, the operating rate of leading domestic aluminium extrusion enterprises showed a downward trend again last week, dropping by 1.00 percentage point from a week ago to 57.5%. According to an SMM survey, some enterprises are currently operating normally, but new orders generally plummeted. Especially after the spot price of aluminum broke through 21,000 yuan/mt last week, potential orders have also been postponed, and enterprises have expressed concerns about future demand. By sector, the construction extrusion market remained sluggish, with enterprises mainly relying on orders on hand and orders from old customers, while new orders are weak. In the industrial extrusion sector, PV module manufacturers are constrained by high aluminum prices, leading to significant market fluctuations, delayed orders, and extended payment periods, which exacerbated the situation. Overall, end-user demand is gradually transitioning to the off-season, together with high aluminum prices, resulting in a weak operating rate.