Growing supply and faltering demand drive sharp decline in Henan aluminum prices

Aluminum prices in Henan dropped sharply to a discount of 100 yuan per tonne over the Changjiang spot price in mid-October, dragged down by soaring inventories and flagging demand, Shanghai Metals Market (SMM) has learnt.

The flow of aluminum ingot into Henan from Gansu Dongxing Aluminum Co., from Ningxia Qingtongxia Aluminum Co., East Hope Aluminum Co., and from Xinjiang Tianshan Aluminum Co, among other producers, has exacerbated pressure from oversupply in the region. Consumption, meanwhile, has faltered considerably, causing aluminum inventories to surge. Aluminum smelters in the region have confirmed to SMM that they have seen inventories balloon from normal levels. Stocks in Gongyi, a major consumption hub in Henan, have piled up to near 100,000 mt, SMM has confirmed with local traders.

Poor order books have discouraged processors from building up raw material inventories. Henan is one of China’s largest air-conditioner foil producing regions, but orders for that industry have been anemic, even in its normal peak-demand season.

Tight liquidity has also put a crimp on demand. Banks in Henan have tightened lending to aluminum processors. Those deemed to have financial problems are no longer able to secure acceptance bills from banks. One processor with millions in overdue loans has had its accounts frozen, forcing it to close. Most processors normally produce in advance of expected orders from regular customers. Customers, however, continue to work through inventories built up earlier, restricting current purchasing of raw materials. This has forced aluminum processors to scale back their own production, eating into aluminum ingot demand.

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