SHANGHAI, Jul 13 (SMM) - Operating rate across Chinese secondary aluminium producers dropped in June due to a seasonal lull, environmental probes, stricter limits on impurities in scrap imports and sweeping tariffs on US aluminium scrap imports.

June’s rate came in at 52.74%, 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.

Most producers had relatively high finished products inventory as demand throughout the first six months of this year was much weaker than the same period last year. Producers, therefore, preferred to cut production and destock amid a seasonal lull in order to better manage their cashflows.

Many small- and medium-sized producers in Jiangxi suspended their production for rectification in June as the central government initiated the month-long environmental probes across the country. 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 hindered US resources from flowing to China for domestic sales.

Sales also substantially contracted in June though some producers were keen to take more export orders given weak demand in the domestic market and limited aluminium scrap imports. Some producers in Guangdong even began the maintenance works ahead of schedule.

Aluminium prices dropped in June, touching 14,000 yuan/mt at the end of the month. ADC12 prices also weakened, down 200-300 yuan/mt from a month ago across various regions. We expect ADC12 prices to see further downward room in July as demand weakens.

We expect the operating rate of secondary aluminium producers to extend its decline to 49% in July as the seasonal lull and environmental probes continue.