On the recovery of downstream operating rates last week, the consumption of aluminium ingots rose leading to a decline in social inventories, found the Shanghai Metals Market.

According to SMM data, the average operating rate across major aluminium processing enterprises stood at 64 per cent last week from April 1 to 5, as a result of increased operating rate of primary aluminium alloy companies and stable operating rate of aluminium wires and cables producing enterprises and aluminium extrusion firms

Due to the increased consumption of aluminium ingots by downstream sectors and low arrivals of stocks to warehouses, social inventories of aluminium ingots last week dwindled by 18,000 tonnes week-on-week to amount to 847,000 tonnes, of which 721,000 tonnes was for sale.

In the earlier week, on March 28, aluminium ingot inventories in China stood at 865,000 tonnes, down by 5,000 tonnes, marking the first decline after the Chinese New Year holiday.

Amongst all the major Chinese consumption areas, inventories in Gongyi saw the highest decline last week of about 19,000 tonnes week-on-week, attributed to heavy outflow from warehouses but poor arrivals of stocks.

In Shanghai, aluminium ingot inventories fell by 7,000 tonnes week-on-week, followed by the closed import window, which led to limited stock inflow to warehouses. The strong destocking performance in Gongyi and Shanghai were the two main factors that contributed to the overall downfall of inventories last week.

However, SMM believes the recent price hikes of aluminium ingots would dampen the purchasing sentiment, resulting in certain amount of inventory on hand. For instance, the current inventory in Wuxi has already increased by 14,000 tonnes week-on-week to reach 291,000 tonnes. SMM predicts the aluminium ingot inventory performance will go back as was in early April but would continue showing an overall downtrend.