In July, SHFE aluminum traced a bottoming-out-and-rebounding path with a choppy upward bias. The settlement price of the most-traded aluminum contract climbed steadily from around Yuan 22,500/tonne in early July and gained Yuan 1,110/tonne, up roughly 4.9%, by month-end.
Even though July is a traditional off-season, China's aluminum plate, strip, and foil sector ran broadly stable. Weekly output eased modestly but held at about 390,000 tonnes, with operating rates staying in the 70%-71% range. Finished goods inventories first fell and then rose, with a late-July drawdown followed by a slight rebuild in early August.
Mysteel's survey of 130 sampled aluminum plate, strip, and foil producers shows weekly output slipping from 393,170 tonnes in early July to 390,270 tonnes in early August, a cumulative drop of 2,900 tonnes, or 0.74%. The output curve was front-loaded, though the off-season decline was far from severe. Two factors explain this.
First, the Middle East conflict in the second quarter sent LME aluminum sharply higher and opened an export window. Moreover, the broader market was in a small peak, order books at fabricators thickened. Market feedback suggested small-sized enterprises mostly cleared their backlog orders only in June, when new orders began thinning, while mid and large-sized smelters had backlogs running into July and kept layering in fresh orders, leaving output broadly steady.
Additionally, aluminum prices fell sharply from late June, bottoming near Yuan 22,450/tonne. The lower absolute price lifted end-user ordering appetite and gave smaller enterprises, whose new orders had nearly dried up in June, a fresh round of business. So across small, medium and large-sized smelters, July order inflows picked up to varying degrees on the price retreat.
For the week ended August 14, finished goods stocks at the 130 sampled smelters stood at 504,800 tonnes, up 5,300 tonnes from 499,500 tonnes the prior week and rising for a second straight week. According to client feedback, when prices chopped sideways in the Yuan 22,800-23,200/tonne band earlier, downstream pickup was very active, not only was that the lowest zone in half a year, but the range held long enough to draw buyers in. And the rare combination of low price and tight bandwidth lit up spot demand.
Then, as traders' primary aluminum inventories kept drawing down, prices rebounded quickly; once they pushed above Yuan 23,800/tonne, pickup willingness faded and finished stocks began to accumulate, though they remain at a relatively healthy level. With the September-October peak season approaching, finished inventories are expected to turn a corner and drift lower again.
August is still a traditional off-season, but apart from smaller enterprises seeing lead times compress further to 2-3 days, the rest of the picture looks decent. August order books were essentially filled out around the 10th. Thus, total sector orders slipped only marginally from July, keeping the off-season-lite pattern intact.
The caveat is that prices have risen too fast for downstream restocking sentiment to recover, so finished goods stock buildup pressure persists at smelters. As September-October peak season arrives, downstream offtake should improve month-on-month.
Written by Regina WANG
wangjiaqie@mysteel.com
