China aluminium rod inventory stays high, processing fees edge up amid falling prices

According to SMM statistics, as of September 11, days of in-factory inventories at aluminium rod plants in China recorded 8.06 days, up 0.43 days W-o-W; the inventory ratio rose from 100.95 per cent to 102.86 per cent, up 1.91 percentage points. Looking at the trend over the past five weeks, inventories continued to consolidate at highs, with the inventory ratio staying above 100 per cent in the upper range for the year, as destocking and restocking alternated without a clear one-way trend.

Over the same period, the combined operating rate of industry leaders in the aluminium rod sector recorded 72.50 per cent, down 0.46 percentage points W-o-W, pulling back slightly after stabilising at 72.96 per cent for three consecutive weeks, and overall remaining at low levels. The combination of inventories consolidating at highs and a slight pullback in operating rates reflects that the current oversupply in aluminium  rod has yet to change, the earlier downstream restocking pulse has faded somewhat, market buying sentiment has weakened marginally, and production schedule enthusiasm at plants remains subdued.

With oversupply yet to see any meaningful easing, inventories are expected to continue to consolidate at highs; operating rates, constrained by the supply-demand imbalance, are likely to stay at low levels in the near term. Attention should be paid to the boost to production schedules from the restart of power grid projects and export orders in late September.

During the week, aluminium prices overall retreated after a rapid rise and then stabilised at low levels, pulling back from RMB 24,460 per tonne last Tuesday (September 8) to RMB 24,140 per tonne this Tuesday (September 15), a cumulative decline of about RMB 320 per tonne. In the latter half of the week, prices moved sideways in a narrow range of RMB 24,140–24,180 per tonne, with the centre clearly lower W-o-W. The retreat from highs in aluminium prices provided some support to processing fees.

As of September 15, processing fees for aluminium  rod by region showed divergent performance compared with last Tuesday (September 8): Shandong reported RMB 150 per tonne (flat), Inner Mongolia reported RMB 75 per tonne (down RMB 25 per tonne), Henan reported RMB 300 per tonne (up RMB 50 per tonne), Jiangsu reported RMB 350 per tonne (up RMB 50 per tonne), Hebei reported RMB 250 per tonne (up RMB 50 per tonne), and Guangdong reported RMB 400 per tonne (up RMB 50 per tonne).

Processing fees in most regions recovered and rebounded, driven by the pullback in aluminium  prices, easing cost-side pressure, and pre-holiday downstream restocking, with Henan, Jiangsu, Hebei, and Guangdong all rising RMB 50 per tonne in tandem. Shandong held steady at low levels, while Inner Mongolia remained at extremely low levels nationwide due to ample regional supply and intense brand competition.

Given that the current oversupply in aluminium rod has yet to change and inventories are consolidating at highs, upside room for processing fees is limited. However, if aluminium  prices continue to consolidate on a subdued note, the centre of processing fees is expected to keep edging higher, with regional divergence persisting. 

The operating rate of China's aluminium wire and cable industry rose to 64.6 per cent this week, up 0.6 percentage points W-o-W. During the week, production within the industry showed a divergent trend: leading wire and cable enterprises saw solid order performance, with production line loads picking up again and driving the operating rate higher; small and medium-sized enterprises still faced insufficient orders, with a slower pace of production resumptions, and the overall industry downturn has not yet been fully reversed.

On the order side, power grid projects under State Grid and China Southern Power Grid advanced steadily, and expectations for Q4 order realisation remain; however, the actual pace of cargo pick-up has yet to ramp up, and downstream procurement remains cautious, constraining short-term order release.

On the export side, overseas demand for aluminium stranded wire maintains a dynamic window, but new order growth is limited and unlikely to become a major support. Overall, the industry remains weighed down by weak orders in the short term, limiting upside room for the operating rate; but as power grid projects enter the Q4 delivery peak, demand is expected to gradually recover, and the operating rate is expected to rise further.

Note: This article has been issued by SMM and has been published by AL Circle with its original information without any modifications or edits to the core subject/data.