Operating rate of secondary aluminium in China edged down in June: SMM reports

Shanghai Metals Market studied that multiple hindrances relating to environmental problems, additional tariffs on aluminium scrap exports to the US, and stern limitations on impurities in scrap imports inevitably led to a drop in Chinese secondary aluminium operation rate for the month of June.

The operation rate dropped 52.74 per cent, down 5.91 percentage points month-on-month and 6.17 percentage points year-on-year. Production at most producers shrank and finished products inventory edged down.

Compared to last year, the first six months this year saw a relatively lesser demand for finished products, as a result of which most producers were left with heavy stocks in inventories. They, therefore, preferred to cut production and destock amid a seasonal lull in order to better manage their cashflows.

The central government’s initiative for the month-long environment probes across the country in June, on the other hand, enforced many small and medium-sized producers in Jiangxi to suspend their productions for rectification. However, it is unclear when they would resume production.

Besides, the Chinese Customs imposed more rigorous limitations on impurities in aluminium scrap imports. The sweeping tariffs on US aluminium scrap imports also restrained US resources from flowing to China for domestic sales.

As far as the sales are concerned, it registered lower in June due to weak demand in the domestic market and limited aluminium scrap imports. Some producers, however, had shown keen interests in taking more export orders but failed to enlarge sales. Some producers in Guangdong even began the maintenance works ahead of schedule, which also contributed to lower sales in June.

The spot price of Zorba (mixed imported aluminium scrap) showed restrain throughout the month of June, hovering at US$ 1500 per tonne, same as the month of May. This price continued until it dropped on July 5 to US$ 1480 per tonne. Since then, it displayed no change further, while on July 13, the average prices are expected to range between US$ 1470 per tonne and US$ 1490 per tonne.

Aluminium prices, on the other hand, neither showed any exceptional performance in June. According to SMM, the prices dropped to as low as RMB 14000 per tonne at the end of June. ADC 12 prices also weakened, down RMB 200 to RMB 300 per tonne from a month ago across various regions. July is expected to see a further downfall in ADC12 prices as demand is likely to remain frail.

The operating rate of secondary aluminium producers is also likely to decline further to 49 per cent in July as the seasonal lull and environmental probes may continue.