SHANGHAI, Jul 13 (SMM) – Operating rate across 30 Chinese aluminium extrusion manufacturers slid in June amid a sharp decline in the industrial extrusion sector due to Beijing’s curb on solar power capacity growth and subsidy cuts, SMM believes.

In June, these manufacturers operated at 62.44% with industrial extrusion sector down 13.45 percentage points to 50.25%, SMM research found. Construction extrusion manufacturers operated at 63.69%, little changed from May.

Operating rate across large-scale manufacturers came in at 68.69%, the rate across medium-sized ones at 58.16% and that across small ones up to 27.16%.

Early last month, the Chinese government announced its decision to curb solar power capacity growth and cut subsidies. In January, Trump slapped sweeping tariffs on solar panel imports. In mid-2017, India kicked off its anti-dumping investigation over solar cells and modules from China, Taiwan and Malaysia.

Last year, China exported solar products of 9.46GW and 6.7GW to India and the US, respectively.

We forecast the demand for aluminum extrusions in the solar sector to shrink 532,000 mt from last year to 937,000 mt this year.

In addition, limited extrusion consumption growth was seen in the sectors of bike share, special vehicle and automobile. Extrusions for automated assembly lines in the manufacturing industry performed no better as enterprises were not keen to build new capacity on cash woes. The demand boost in electric vehicles has yet to come, more likely in 2020. These factors also limited the operating rate in the industrial extrusion sector.

Meanwhile, operating rate in the construction extrusion sector held firm amid a peak season for building materials. We maintain our expectations that the demand in the construction sector would stay robust throughout this year as new construction starts in 2017 hit a three-year high. Postponed orders due to the Shanghai Cooperation Organisation (SCO) summit in Shandong province also buoyed the production in June.

Finished goods inventory at those 30 manufacturers was high in June as falling aluminium prices and loan pressure suppressed downstream consumers’ buying interest. The finished goods inventory to production ratio rose to 35.92% last month.

We expect the operating rate across these aluminium extrusion manufacturers to fall to some 60% in July as orders shrank with a substantial decrease in the industrial sector.