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With the much-discussed issue of Xinjiang's shipping backlog coming to an end, domestic aluminium ingot inventories began to build up from mid-December, successively breaking through the 600,000-tonne and 650,000-tonne thresholds. By the end of December, inventory levels had increased by nearly 15 per cent compared to the levels on December 18. Of course, the reasons for this sustained inventory buildup cannot be attributed solely to the recovery in shipping. Considering the core context of Xinjiang's shipping resumption, the current domestic aluminium ingot inventory buildup is primarily due to a combination of four factors: "increased supply arrivals + weak demand digestion + industrial structural adjustments + high aluminium prices suppressing consumption." SMM has summarised the four main reasons for the year-end shift in domestic aluminium ingot inventory trends for your reference:
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1. Resumption of Xinjiang shipping leads to concentrated arrivals of backlogged goods
After resolving the bottleneck that previously constrained aluminium ingot circulation, the previously delayed aluminium ingots were shipped and arrived in bulk, directly driving a short-term increase in inventory. Data shows that after Xinjiang's shipping became smooth, although there were fluctuations in the volume of goods en route to key consumption areas such as Wuxi and Gongyi, the overall level remained high. The effect of concentrated arrivals was particularly evident from the previous weekend to the beginning of this week, becoming the direct trigger for the phased inventory buildup. Additionally, with the return to normal rail transportation efficiency following the shipping resumption, the previously used trucking channels, which were less economical, were phased out, further confirming the normalisation of aluminium ingot delivery rhythms and providing a logistical foundation for inventory accumulation.
2. Increased supply capacity and casting volumes amplify inventory pressure
(1) Continuous commissioning of new capacities: Ongoing ramp-up of new domestic electrolytic aluminium projects, including the electrification of new projects in Inner Mongolia and the commissioning of some idle capacities in Xinjiang, has steadily increased operating aluminium capacity. In December, domestic aluminium production was up 1.9 per cent Y-o-Y and 4.0 per cent M-o-M, with daily average production continuously rising, providing incremental support to aluminium ingot supply.
(2) Increase in casting volumes: Overall downstream operating rates declined in the month, with the proportion of liquid aluminium also decreasing, down 0.8 percentage points to 76.5 per cent compared to the previous month, exceeding initial expectations. The main reasons include: first, the impact of the traditional off-season was more pronounced than expected; second, high aluminium prices put further pressure on downstream profits; third, environmental protection-driven production restrictions in some regions intensified, exceeding initial expectations. According to SMM data on the proportion of liquid aluminium, domestic electrolytic aluminium casting volumes in December decreased 13.4 per cent Y-o-Y but increased 7.7 per cent M-o-M, directly increasing the supply of aluminium ingot inventory. It is expected that the proportion of liquid aluminium will further decrease to 75.1 per cent in January 2026, with the trend of increasing casting volumes continuing to exert pressure on inventory.
3. Weak downstream demand during the traditional off-season and severely insufficient inventory digestion capacity
(1) Traditional off-season + high prices suppress demand: Currently, in the traditional off-season for aluminium consumption, coupled with aluminium prices fluctuating at highs, putting downstream enterprises under profit pressure, purchase willingness remains sluggish, and cargo pick-up demand has been significantly suppressed. This week, the operating rate of leading aluminium downstream processing enterprises fell 1 percentage point W-o-W to 59.9 per cent.
(2) Environmental protection-driven production restrictions exacerbate demand contraction: Environmental protection-related controls continue to intensify in core consumption areas such as central China, leading to full production halts at some aluminium processing enterprises and a direct contraction in spot aluminium demand. The pace of inventory digestion slowed substantially, with Gongyi region’s inventory nearly doubling in less than half a month. Moreover, demand recovery will need to wait until after the New Year holiday to observe whether environmental protection controls can be relaxed. In the short term, inventory reduction still lacks momentum.
4. Imbalanced regional inventory distribution and obstacles in warehouse withdrawals aggravate inventory buildup trend
Warehouse areas such as Gongyi are already experiencing noticeable inventory buildup pressure due to downstream production cuts and weak cargo pick-up. Although large discounts may help divert aluminium ingots to Wuxi, short-term regional inventory digestion faces time lags. At the same time, high aluminium prices have weakened restocking willingness among buyers, further limiting inventory turnover efficiency. Additionally, expectations of a continuous increase in casting ingot volume before the Chinese New Year suggest the inventory accumulation trend will persist.
In summary, as the year-end approaches, disruptions in aluminium ingot shipments are gradually subsiding, while supply-side pressure is expected to become more pronounced in Q1 2026. On the demand side, weakness persists. In Gongyi, continued tightening of environmental protection-related controls has significantly slowed the pace of aluminium ingot warehouse withdrawals. Combined with the dampening effect of high aluminium prices on downstream purchase willingness, demand-side stability lacks effective support.
Considering the triple factors of high aluminium prices restraining warehouse withdrawals, sustained smooth shipments from north-west China, and a steady increase in casting ingot volume before the Chinese New Year, the overall inventory buildup trend for domestic aluminium ingots in Q1 2026 appears inevitable. SMM expects domestic aluminium ingot inventory to continue a pattern of slight increases in early January, likely fluctuating within the range of 650,000–750,000 tonnes. The probability of inventory breaking through the 700,000-tonne mark in the second half of January rises significantly, with end-January inventory projected to reach around 730,000 tonnes. From a fundamental perspective, negative feedback from the inventory side is expected to somewhat restrain the momentum for aluminium price surges after the New Year holiday.
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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