This week, the downstream aluminium processing sector remained deeply entrenched in off-season sentiment, with the weekly operating rate down 1 percentage point WoW to 58.8 per cent.
Segment breakdown: Persistently high aluminium prices continued to suppress consumption, with weak end-use demand and seasonal factors exerting widespread pressure across all segments. Primary alloy saw production cuts due to insufficient new orders and inventory pressure; aluminium plate/sheet and strip faced high finished product inventories and escalating price war risks.
Aluminium wire and cable was dragged down by slow State Grid matching and elevated costs; aluminium extrusion struggled with sluggish construction orders and declining PV/automotive orders; aluminium foil demand weakened amid intensifying price wars; secondary aluminium grappled with insufficient off-season orders and high costs.
Core constraints included negative feedback from high aluminium prices, weak off-season demand, inventory pressure, and cost losses. SMM expects the downstream aluminium processing operating rate may drop 0.8 percentage points WoW to 58.0 per cent next week.
Primary aluminium alloy: The sector's operating rate edged down 0.2 percentage points WoW to 54.0 per cent. This mainly reflected sustained high aluminium prices in mid-to-late June suppressing terminal demand, coupled with sluggish downstream consumption and inadequate new orders slowing seasonal cargo pick-up rhythms.
Although May's aluminium alloy wheel hub export data showed resilience and production at top-tier enterprises in the sample remained temporarily stable, some firms marginally reduced operating rates due to capital and inventory pressures.
Notably, most sampled enterprises reported planned production cuts of varying degrees in anticipation of weak domestic demand in July. SMM anticipates significant downward pressure on the sector's operating rate in early July.
Outlook: The sector is expected to remain under pressure. Domestically, traditional off-season patterns and unresolved Sino-US tariffs create dual headwinds, while high aluminium prices' negative consumption feedback persists. Substantial recovery awaits clearer trade policies and effective cost-side relief.
Aluminium plate/sheet and strip: Leading enterprises' operating rate fell 1.2 percentage points WoW to 63.8 per cent. With aluminium prices still elevated, downstream customer pick-ups remained sluggish, keeping finished product inventories high.
Approaching July, key demand drivers like domestic automotive and electronics sectors announced production cut plans, likely depressing aluminium plate/sheet and strip demand further. Oversupply conditions forced more enterprises to cut output, including minor reductions by some leading firms. A new price war looms, though some companies operating near cost lines since spring through volume discounts may struggle to absorb further price cuts.
In summary, against the backdrop of destocking unsalable finished goods inventories and continuously weakening demand, it is expected that the operating rate of aluminium plate/sheet and strip enterprises will fluctuate downward.
Aluminium wire and cable: This week, the operating rate of leading aluminium wire and cable enterprises stood at 61.8 per cent, down 1.4 per cent WoW, with the industry's operating rate continuing to decline.
According to feedback from top-tier enterprises, orders have performed well since the first half of the year, with winning bids frequently materialising, providing sufficient support from orders on hand. However, the State Grid's order matching speed remains relatively slow, coupled with the aluminium price continuing to fluctuate at highs.
Current production only meets short-term, rigid demand deliveries, with the procurement pace significantly slowing down in an attempt to achieve the goal of reducing both raw material and finished product inventories.
Wire and cable enterprises in southern China have reported a slight increase in operating rates recently, mainly influenced by the delivery and order matching mechanisms of China Southern Power Grid. In addition, bidding for orders this month was concentrated in the first half of June, and new orders have declined since the middle and late June.
However, given the concentrated materialisation of orders in the early stage, enterprises also need time to digest the backlog orders on hand. Therefore, it is necessary to focus on the delivery cycle status of orders such as power transmission and transformation after August. It is expected that the operating rate of aluminium wire and cable will remain in the doldrums in the short term.
Aluminium extrusion: This week, the national extrusion operating rate fell slightly by 2.5 percentage points MoM to 50.0 per cent. In the construction materials sector, the overall operating rate of sampled enterprises declined compared to last week.
According to the SMM survey, top-tier enterprises in central China, southern China and eastern China all reported sluggish growth in new orders this week, only maintaining production for orders on hand, leading to a decline in the operating rate.
Some small and medium-sized construction extrusion enterprises in Shandong reported that despite the decline in aluminium prices this week, their customers' wait-and-see sentiment remained strong. They reported that downstream customers believe that the earlier they place orders when expecting a price decline, the more likely they are to place orders at a high point. Customers generally prefer to place orders when they expect prices to bottom out.
This week, the industrial extrusion operating rate dropped back slightly compared to last week. PV frame sample enterprises reported that they are negotiating next month's cooperation with module factories. Some leading PV frame extrusion enterprises in eastern China, southwestern China and Hebei reported that orders are expected to decline next month. Production orders this week cannot be linked with next month's orders. Additionally, some processing enterprises expect that the PV frame processing fee may further decline, compressing corporate profitability and leading to a pullback in the operating rate.
In terms of automotive extrusion, some large and medium-sized sample enterprises in eastern China and central China reported that due to the obstruction of destocking at some OEMs and the slowdown in production speed, new orders are sluggish. Coupled with insufficient orders on hand, their operating rates have dropped to around 50 per cent. Despite these enterprises actively negotiating new cooperation, it has not yet been implemented.
The operating rates of other industrial material production enterprises, such as those in rail transit and power pipelines, remained basically unchanged from last week this week. The main reason is that their orders are mainly long-term contracts from long-established customers, with a relatively stable customer base. Overall, affected by the off-season in consumption, the overall operating rate of aluminium extrusion has declined significantly. SMM will continue to monitor the actual progress of order fulfilment in various fields.
Aluminium foil: This week, the operating rate of leading aluminium foil enterprises dropped slightly by 1.1 percentage points WoW to 69.6 per cent. The market demand for aluminium foil continued to decline during the week.
By product, packaging foil has seen a straight-line decline in demand since April while being deeply entangled in a price war. Although the production scale of air-conditioner foil is large, its operating rate relies on the support of "volume discount".
Downstream battery foil enterprises have also reported production cut plans, with orders declining as well. Overall, the market demand for aluminium foil has weakened recently, which is expected to drive the operating rate down gradually.
Secondary aluminium alloy: This week, the operating rate of leading secondary aluminium enterprises remained stable at 53.6 per cent. Although leading enterprises can maintain normal production, the overall operating rate of the industry has still dropped back slightly due to the off-season in demand, supply pressure, and high raw material costs.
As July approaches, the off-season effect persists and competition in the market intensifies under the impact of low-priced supplies. Additionally, terminal automakers may reduce production due to high-temperature holidays or inventory pressure, which is expected to further suppress the operating levels of secondary aluminium plants.
In the short term, the industry's operating rate may continue to decline slightly, with a focus on changes in raw material supply and demand.
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.
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