Aluminium billet inventory in China hits 5-year high, processing fees rise amid price decline

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According to SMM statistics, as of August 20, aluminium billet inventory in China's major consumption areas recorded 143,000 tonnes, with an inventory buildup of 500 tonnes from last Monday and 6,000 tonnes from last Thursday, maintaining a continuous buildup pace. Compared with the same period, total inventory has risen to the highest for the same period in the past five years.

From the perspective of warehouse withdrawals, aluminium billet warehouse withdrawals from August ​10 to August 17 recorded 30,300 tonnes, up 2,800 tonnes W-o-W. Market transaction activity improved slightly but remained at a low level for the year.

The current continuous inventory buildup of aluminium billet is mainly driven by both supply and demand sides: on the one hand, consumption has entered the traditional off-season, with downstream procurement still mainly based on rigid demand, making it difficult to absorb the continuous growth on the supply side; on the other hand, previous high processing fees drove the continuous recovery of operating rates at aluminium billet plants, with supply-side pressure continuing to emerge.

Specifically, inventory in Foshan remained at a periodic high of 66,000 tonnes, in Wuxi at 26,500 tonnes, and Huzhou and Nanchang continued to see slight inventory buildup. Comparing with the trend for the same period over the past three years, the historical average for week 34 was about 115,000 tonnes, with current inventory significantly above the average, continuing the oversupply pattern. Given that the supply-demand situation is difficult to reverse fundamentally, aluminium billet inventory is expected to maintain a buildup trend next week, and attention should be paid to the recovery of off-season consumption downstream and changes in operating rates at aluminium billet plants.

During the week, the centre of aluminium prices pulled back rapidly. SMM A00 spot aluminium prices fell from RMB 24,120 per tonnes last Thursday to RMB 23,600 per tonnes, with a cumulative decline of about RMB 520 per tonnes. Against the backdrop of significant decline in aluminium prices, aluminium billet processing fees in various regions generally showed a trend of holding prices firm and rising.

By region, in Foshan, φ90 aluminium billet processing fee was reported at RMB 310 per tonnes, φ120 at RMB 260 per tonne, up RMB 150 per tonnes each from last Thursday; in Wuxi, φ90 aluminium billet was reported at 560 yuan/tonnes, φ120 at RMB 500 per tonnes, up RMB 140/200 per tonnes respectively from last Thursday; in Nanchang, φ90 aluminium billet was reported at RMB 450 per tonnes, φ120 at RMB 400 per tonnes, up RMB 250 per tonnes each from last Thursday.

The significant price firming of processing fees during the week was mainly driven by two factors: first, the rapid pullback in aluminium prices led to strong willingness among plants to hold prices firm based on earlier high-cost raw material inventory; second, under continuous delivery pressure on the supply side, processing fees were forced to raise to maintain reasonable shipment profits.

It is worth noting that the magnitude of processing fee increase was significantly higher than the decline in aluminium prices, reflecting that current suppliers have relatively weak bargaining power, but downstream acceptance of high processing fees remains to be seen; the sustainability of the processing fee trend depends on whether aluminium prices can stabilize and the strength of actual downstream demand absorption. Subsequently, attention should be paid to delivery situations by region and changes in downstream operating rates.

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.