In January, the operating performance of domestic primary aluminium billets weakened more than expected. According to SMM data, the operating rate for aluminium billets dropped significantly by 5.3 percentage points m-o-m to 50.3 per cent, down 1.3 percentage points y-o-y. Aluminium billet production in January was only 1.357 million tonnes, a sharp decrease of 144,000 tonnes m-o-m, down 3.9 per cent; it increased slightly by 12,000 tonnes y-o-y, up 0.9 per cent.

After the New Year's Day holiday, domestic aluminium prices surged continuously and hit a record high by the end of January, which, to some extent, diverged from the weak fundamentals. Against this backdrop, downstream companies showed no intention to chase higher prices for stockpiling before the Chinese New Year, with rigid demand relying solely on volume discounts, and restocking sentiment fell to a freezing point. Profile enterprises generally started holidays earlier, and aluminium billet enterprises bore the brunt of order reductions, leading to a "flash crash" in aluminium billet processing fees. The industry situation deteriorated rapidly, with processing fees in three regions trapped deep in negative territory and struggling to recover, while in-factory inventory at aluminium billet enterprises also climbed step by step. Under pressure from inventory and capital, aluminium billet supply in January shrank more than expected. Compared with the previous month, more enterprises underwent maintenance or proactively cut production by reducing liquid aluminium procurement, with production in Guangxi, Xinjiang, Inner Mongolia, Qinghai, Guizhou, and Henan provinces dropping more than 10 per cent m-o-m.

Looking ahead to February, as the Chinese New Year holiday approaches, most enterprises that underwent maintenance or proactively cut production in January have not yet resumed operations. With more downstream enterprises entering the holiday period, a lack of orders, high fluctuations in aluminium prices, and processing fees remaining below cost lines have further dampened billet plants' willingness to produce.

In early February, the scale of production cuts and halts at aluminium billet enterprises is expected to continue expanding. In previous years, most primary aluminium billet enterprises maintained normal production during the Chinese New Year holiday, but this year, several billet plants have chosen to suspend operations during the holiday. Taking into account the casting ingot plans of upstream aluminium enterprises, expectations for the domestic proportion of liquid aluminium, and the performance of social and in-factory aluminium billet inventories, SMM expects domestic aluminium billet production in February to fall below 1.13 million tonne, with the operating rate projected to pull back to around 42.1 per cent, hitting a nearly four-year low. 

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.