Rising supply & weak cargo pick-up exerting heavy pressure on China’s domestic aluminium ingot inventory

On May 27, 2024, SMM reported that China's social inventory of aluminium ingots stood at 781,000 tonnes, with 655,000 tonnes available for sale. This marked an increase of 14,000 tonnes from the previous week and a significant year-over-year rise of 160,000 tonnes. Regarding cargo pick-up, only 102,300 tonnes of aluminium ingots were retrieved from warehouses in China, marking a decline of 12,500 tonnes W-o-W.

This decrease represents a new low since the Labour Day holidays and remains at a five-year low for the same period. The continuous accumulation of domestic aluminium ingots over nearly half a month, coupled with the persistent increase in supply but weak cargo pick-up, highlights significant inventory pressure.

Domestic aluminium ingot arrivals in China to rise in late May

Due to a slight increase in ingot production in May, overall domestic aluminium ingot arrivals in China are expected to rise in late May. Over the weekend, two special trains of Russian aluminium, each carrying approximately 2,700 tonnes, arrived in the Gongyi area, boosting the inflow of Russian aluminium into major consumption areas compared to April.

The South China region continues to see high arrivals due to the progress of resumption in Yunnan. However, the recent restart of some billet factories in Tianyang, Guangxi, reduced aluminium ingot arrivals in the region. Over the weekend, arrivals totalled 9,300 tonnes, down 1,500 tonnes from the previous week. In the Wuxi area, arrivals remained high and stable compared to the previous week.

Aluminium billet inventory scenario

Regarding aluminium billet inventory, it remains bolstered by processing fees, characterized by "trading price for volume," the steadfast demand from downstream aluminium extrusion sectors, and the reduction in aluminium billet supply. As of the end of May, domestic aluminium billets' destocking has persisted and shown stronger performance than initially anticipated.

Although inventory levels are still high compared to the same period over the last four years, the gap with the previous year has narrowed to 37,000 tonnes. According to an SMM survey, the aluminium billet supply disruption in Guangxi continues. Last week, billet factories in Tianyang partially resumed operations, but high aluminium prices are hindering a full recovery of local aluminium billet production in the short term.

Furthermore, with the current low inventory levels, aluminium billet arrivals in South China decreased by 2,700 tonnes week-over-week to 4,200 tonnes over the weekend, while cargo pick-up remained stable at around 10,000 tonnes. According to SMM statistics, as of May 27, the social inventory of domestic aluminium billets stood at 172,100 tonnes, marking a decrease of 9,000 tonnes compared to the previous Thursday.

Last week, the quantity of aluminium billets picked up from warehouses amounted to 51,900 tonnes, down by 500 tonnes week-over-week. Throughout May, the pick-up of domestic aluminium billets remained consistently above 50,000 tonnes, demonstrating robust performance.

Future trajectory of domestic aluminium ingot and aluminium billet inventories

Domestic aluminium ingot inventory has steadily mounted for nearly two weeks, with the supply consistently rising while cargo pick-up remains sluggish. Destocking is encountering substantial pressure, and the current status of domestic aluminium ingot inventory needs to be improved to support the aluminium fundamentals adequately.

Furthermore, there is an anticipation of heightened arrivals in the upcoming period. Short-term projections suggest domestic aluminium ingot inventory will struggle to resume a normal destocking pace, hovering around 750,000 to 800,000 tonnes. Conversely, due to reduced supply and steady cargo pick-up, domestic aluminium billet inventory is forecasted to experience a slight reduction, potentially decreasing to approximately 150,000 tonnes.

Sourced from SMM under the content exchange agreement