SHANGHAI, May 11 (SMM) – The average operating rate of secondary aluminium dropped 12.4 percentage points MoM to 33.1% in April for multiple factors listed below.

1. COVID prevention and control: The pandemic situation deteriorated since March, with Shanghai, Jiangsu and Jilin being hit the most. A number of local manufacturers had to reduce or lower the production in response to pandemic control measures. And some large ones more than halved their production.

2. Disturbed transportation: The procurement of aluminium scrap became quite difficult amid COVID-related transportation restrictions, which forced some manufacturers to reduce the production for lack of raw materials. Finished products inventory also rose significantly also due to transportation problems and surging freight. The pandemic also hindered the import of scrap, resulting in production cuts among manufacturers in Guangdong and Zhejiang.

3. Insufficient demand: Persistent COVID in China has further depressed downstream demand, especially car makers and car part manufactures. Orders for secondary aluminium shrank significantly, hence the output dropped.

4. High cost and squeezed profit: Aluminium scrap prices were relatively resistant despite falling aluminium prices. In addition, the cost of ADC 12 rose further as natural gas prices climbed to different degrees across many places. As such, the profit of secondary aluminium narrowed further, some even suffered losses. A few manufacturers chose to reduce the production in order to contain the losses.

Secondary aluminium output slumped in April in light of multiple factors.

Near-term forecast:

After the pandemic situation eases in May, the transportation efficiency will improve, and terminal companies are also expected to resume the production, reviving downstream demand. It is expected that secondary aluminium operating rates will rise in the month, but be lower than the same period last year.