SMM

Last week, aluminum prices rebounded slightly from low levels, and transactions in the domestic spot aluminum market were moderate. Although the rush to meet export deadlines no longer supported the market, considering that not all export orders were delivered and there was still domestic year-end order delivery demand, downstream demand did not see a significant retreat, with most downstream purchasing as needed. The spot markets in east China and south China showed a slight premium, and suppliers' quotes remained relatively firm. According to SMM statistics, domestic aluminum ingot outflows from warehouses decreased by 5,200 mt WoW to 125,100 mt, with the decline being relatively small and in line with expectations. Coupled with the recent stable shipment pace in Xinjiang, although the volume of goods in transit to Wuxi and Gongyi increased slightly in the latter part of last week, leading to concentrated arrivals over the weekend and resulting in inventory buildup, it has not yet formed a significant inventory turning point. As of December 9, 2024, SMM statistics showed that domestic social inventory of aluminum ingots was 553,000 mt, and domestic circulating aluminum inventory was 427,000 mt, an increase of 6,000 mt compared to last Thursday. Due to the expanding price spread between Henan and Shanghai, concentrated arrivals in Wuxi were most evident, and outflows from warehouses declined, resulting in a 10,000 mt inventory buildup in Wuxi. Although arrivals in Gongyi also increased slightly, outflows from warehouses rose against the trend during the week, keeping inventory stable. In Foshan, supply and demand weakened more significantly after entering December, continuing a slight destocking trend. On a YoY basis, current domestic aluminum ingot inventory decreased by only 7,000 mt compared to the same period last year. SMM believes that entering early December, although the recent shipment pace in Xinjiang has eased, causing domestic aluminum ingot inventory to fluctuate, the backlog in Xinjiang is expected to continue to ease, with an increase in the volume of goods in transit to Gongyi and Wuxi. Caution is needed against the pressure and risks caused by concentrated arrivals. Although the year-end inventory buildup turning point has been delayed, the sustainability of the off-season rise in aluminum ingot outflows from warehouses is limited. SMM expects the inventory turning point for aluminum ingots to appear around mid-December, with the support of low inventory for aluminum prices already weakening. SMM expects domestic aluminum ingot inventory to hover around 550,000-650,000 mt in December, with the risk of sustained inventory buildup increasing, and inventory may reach around 600,000 mt in mid-to-late December. It is necessary to observe the changes in downstream operating rates after the official implementation of the cancellation of export tax rebates for aluminum semis exports, and whether the boost to spot aluminum outflows from the price correction phase will continue.

This week, aluminum billet inventory and outflows from warehouses also performed well. According to SMM statistics, as of December 9, domestic social inventory of aluminum billets was 91,500 mt, a decrease of 2,900 mt compared to last Thursday. In early December, some aluminum billet manufacturers reduced production, with no significant pressure on the supply side and continued low arrivals, allowing domestic aluminum billets to continue destocking after falling below 100,000 mt. Recently, aluminum billet supply has been slightly tight, delaying the inventory turning point in the off-season. On a YoY basis, inventory was 5,900 mt higher than the same period last year, still at a high level for the past three years. In terms of outflows from warehouses, aluminum billet outflows from warehouses increased slightly by 1,000 mt WoW to 46,800 mt last week. Entering December, the "rush to export" has ended. According to an SMM survey, downstream enterprises in south China have not seen changes in orders and demand compared to late November, with enterprises having export orders mostly delivering in advance. Feedback indicates that the "rush to export" in south China is not significant, while extrusion enterprises in east China and plate/sheet, strip and foil enterprises in central China have a higher export proportion. However, there was a divergence between aluminum billet outflows from warehouses and the weekly operating rate of downstream extrusion, reflecting that although downstream operating rates were somewhat suppressed, some downstream enterprises had the intention to stockpile at low prices for year-end inventory.

SMM expects that although recent aluminum billet operating rates have declined and the shipment pace in Xinjiang has slowed slightly, reducing the overall pressure on domestic aluminum billet arrivals, the strong performance of outflows from warehouses has boosted aluminum billet inventory. However, at the year-end stage, domestic aluminum billets remain in a weak supply and demand pattern, with stable shipments from Xinjiang to Huzhou. Subsequent arrivals may see a significant supplement, with domestic aluminum billet inventory expected to remain stable or increase slightly within the month. It is also necessary to observe the changes in downstream extrusion operating rates after the official implementation of the cancellation of export tax rebates for aluminum semis exports, and whether the boost to aluminum billet outflows from the price correction phase will materialize.

On the demand side for aluminum billets, in the first week of December, the weekly operating rate of the domestic aluminum processing industry decreased by 1.70 percentage points MoM to 50.80%. This decline in operating rates was mainly due to weak orders from some construction extrusion enterprises and the slowdown in production pace by some enterprises at year-end due to lower-than-expected demand. According to an SMM survey, the order growth for construction extrusion enterprises was mixed, with some enterprises in Hunan experiencing a significant 20% decline in operating rates compared to last week. Industrial extrusion enterprises performed relatively steadily, driven by the transportation and new energy sectors. Overall, in the current market environment, enterprises generally reported significant pressure on processing fees, further compressing profit margins.