Aluminium ingot price rally in China dampens buying interest, leading to additional 12,000 tonnes of stock accumulation

The Shanghai Metals Market survey reported on Monday, May 20, that China's domestic social inventories of aluminium ingot across major consumption areas came in at 759,000 tonnes, experiencing an increase of 12,000 tonnes over the weekend. 

SMM also calculated and found that the stock level on May 20 was 90,000 tonnes higher year-on-year. The latest surge in inventories is linked with rising aluminium prices, which are discouraging domestic downstream manufacturers from purchasing new stock. 

Analysis for upward trajectory

Other factors that contributed to the rise in inventory included an influx of primary aluminium from Guangxi and Yunnan. South China saw a month-on-month increase of over 1,000 tonnes in arrivals over the weekend. Inching closer to the domestic off-season was also a valid reason for the inventory surge over the weekend as demand started decreasing. Outflows from warehouses in south China decreased by 3,800 tonnes M-o-M, a significant decline of 50 per cent, while that in Wuxi dropped by 2,000 tonnes M-o-M. 

Gongyi was an exception as it saw an uptick in downstream purchases, resulting in outflows increasing by 12,000 tonnes M-o-M and primary aluminium inventory declining by 2,000 tonnes. 

Domestic aluminium billets stock

On May 20, China's domestic aluminium billet inventories stood at 185,700 tonnes, down by 7,500 tonnes from Thursday, May 16, attributed to the destocking of nearly 45,000 tonnes in the last one month. Although the current inventory is still at a high level compared to the past four years, the gap compared to the previous year's period is stable, currently at 37,100 tonnes. However, outflows from warehouses last week decreased by 3,300 tonnes W-o-W to 52,400 tonnes. 

The destocking of domestic aluminium billets continued in the second half of May due to steady production with the increased weekly operating rate of downstream aluminium extrusions.  

Short-term outlook

Going ahead, aluminium ingot inventory is expected to rise, given the significant increase in production during May 2024. In April, China's aluminium ingot output grew 4.93 per cent year-on-year to 3.515 million tonnes, according to SMM. In addition to the production hike, the surge in prices above previous highs will also put pressure on inventories. 

There are also some reports that downstream production may halt at small and medium-sized manufacturers, making the demand for aluminium ingot outlook look less optimistic. 

For aluminium billet inventory, SMM expects it to remain below 200,000 tonnes. However, close attention will be given to supply-side fluctuations and downstream consumption performance.

Sourced from SMM under the content exchange agreement