Domestic aluminium ingot accumulation after National Day Holiday expected to be moderate and controllable

Ahead of the National Day holiday, domestic aluminium ingot inventories continued to set fresh year-to-date lows. According to SMM statistics, as of September 30, electrolytic aluminium ingot inventories in China's major consuming regions stood at 638,000 tonnes, down 36,000 tonnes from Monday and 40,000 tonnes from last Thursday. The pace of pre-holiday destocking was relatively fast overall, leaving ample buffer for inventory accumulation during the holiday.

Source: SMM

On the supply side, domestic downstream demand recovered somewhat month on month in September, but processing fees for some fabricated products came under pressure, leading some downstream enterprises to cut or suspend production, which lowered their willingness to purchase molten aluminium and pulled the molten-aluminium output ratio down. The molten-aluminium ratio fell 0.5 percentage points month on month to 78.2 per cent in September, coming in below expectations set at the beginning of the month, with the core decline mainly concentrated in parts of the Central Plains and Southwest China. Based on SMM's molten-aluminium ratio estimates, domestic electrolytic aluminium ingot casting volume fell 6.2 per cent year on year and 0.8 per cent month on month in September. Looking into October, affected by the National Day holiday, a few downstream enterprises have staged output cuts or suspensions, and the molten-aluminium ratio is expected to edge down a further 0.3 percentage points to 77.9 per cent. As processing fees for some downstream products still face downside risk and molten-aluminium demand remains under downward pressure, ingot casting volume is likely to stay on a rising trend month on month during the holiday. 

Source: SMM

However, transportation constraints are expected to offset the concentrated release of the increase in ingot casting. The shortage of rail containers in Xinjiang has yet to be resolved, compounded by transport bottlenecks in the Southwest, leaving overall shipping efficiency limited during the National Day holiday and easing the pressure from concentrated arrivals. As such, domestic aluminium ingot arrivals remain broadly manageable.

By region, SMM expects Foshan inventories to build by around 25,000–28,000 tonnes over the holiday, driven by increased casting in the Southwest and inter-regional cargo transfers spurred by price spreads; Wuxi and Gongyi are each expected to see accumulation of 10,000–20,000 tonnes. Taken together, the total domestic stock build over the holiday is projected to be broadly on par with the 57,000 tonnes accumulated during the same period last year, and domestic inventories are expected to rise to around 700,000 tonnes on the first trading day after the holiday.

Overall, the magnitude of holiday accumulation is moderate and controllable. Combined with the low absolute inventory level before the holiday, the post-holiday build will exert relatively limited pressure on the spot market, and the domestic aluminium ingot spot fundamentals will remain in a tight balance.

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