June saw notable impacts on the secondary aluminium market from both lower primary aluminium prices and tighter scrap supply amid tax policy changes. The refined-to-scrap spread narrowed to Yuan 412/tonne, a fresh year-to-date low, encouraging some consumers to replace scrap with A00 ingots. With ongoing tax inspections across regions, the spread is likely to narrow further.
Aluminum price
In June, China's aluminum prices pulled back after fluctuating at high levels, with the aluminum spot price trading in a range of Yuan 23,800-24,330/tonne. Since early June, prices have weakened in a sustained oscillation. The aluminum recyclers faced difficulty in restocking due to supply shortage, holding low inventories with most remaining stocks purchased at high prices, leading to reluctance to sell. As aluminum prices fell, secondary aluminum smelters actively sought to build inventories at lower levels, but tight aluminum scrap availability and elevated prices forced smelters to purchase aluminum scrap at high prices.
Supply constraints were exacerbated by tighter tax regulation. The rollout of the Golden Tax Phase IV system and implementation of the Value-Added Tax Law in 2026 have strengthened detection of disguised transactions, fictitious individual suppliers, and excessive "reverse invoicing"; non-compliant reverse invoicing has been blocked. Consequently, "reverse invoicing" has been suspended or strictly restricted in Hubei, Anhui, Jiangxi, and other provinces.
Refined-to-scrap spread
Due to aluminum scrap shortages in June, the refined-to-scrap spread continued to narrow. As of June 23, the price gap between A00 primary aluminum ingot and bright aluminum wire scrap stood at Yuan 412/tonne, near its lowest level of the year. With aluminum prices softening, circulation of bright aluminum wire scrap tightened and aluminum scrap prices remained stubbornly high.
As the spread narrowed below the Yuan 600/tonne threshold (indicating aluminum scrap is relatively expensive and economically less attractive), some secondary aluminum producers began increasing the proportion of A00 ingot usage as a substitute for bright aluminum wire. (Note: A spread ≤ Yuan 600/tonne suggests considering A00 ingot over aluminum scrap; > Yuan 600/tonne favors aluminum scrap. Bright aluminum wire scrap has a 98% recovery yield.)
Demand side
Secondary Aluminum Alloy Ingots (ADC12)
Despite weaker primary aluminum, secondary aluminum alloy ingot prices rose counter-seasonally. In East China, ADC12 increased from Yuan 23,200/tonne to Yuan 23,600/tonne in June alongside broad production cuts.
According to Mysteel surveys, with reverse invoicing largely suspended in many regions, alloy ingot producers can only source tax-invoiced aluminum scrap. Some plants that previously relied on imported aluminum scrap were unable to do so due to losses based on overseas aluminum scrap. The domestic tax-invoiced aluminum scrap in China, however, was both expensive and scarce.
Since May, numerous ADC12 smelters have cut output due to raw material shortages, with some halting production entirely. The smelters' June aluminum scrap procurement volumes and in-plant aluminum scrap inventories declined MoM. It is expected that more regions will suspend reverse invoicing, implying further expansion of alloy ingot production cuts.
Secondary aluminum bars
The secondary aluminum bar market remained broadly weak in June. Since Q2, scarce aluminum scrap supply and tepid downstream demand have forced many aluminum bar mills to curtail the production.
Entering the traditional off-season in June, downstream profile mills slowed their offtake, mostly buying on dips. Falling prices of molten aluminum bars prompted some profile makers to switch from secondary bars to molten aluminum bars, further eroding demand for secondary bars. A near-term recovery appears unlikely.
Secondary aluminum plate, strip and foil
June marks the traditional low season, with notable divergence across segments, where orders for common plates and sheets were weak domestically due to sluggish construction demand. Export orders, however, remained robust. The suspension of reverse invoicing has had limited impact on plate/sheet/foil enterprises. As aluminum prices declined, plate/strip/foil mills showed stronger willingness to build inventories on dips.
Outlook
Going forward, ongoing nationwide tax inspections and likely broader restrictions on reverse invoicing will keep raw material shortages unresolved at alloy ingot plants, sustaining production cuts and making ADC12 prices prone to rise with limited downside. Accelerated aluminum price drop will further narrow the refined-to-scrap spread, prompting increased substitution of aluminum scrap with aluminum.
Secondary aluminum bars will remain under pressure from the traditional off-season and competition from molten aluminum bars, with limited demand recovery in the near term. The plate/strip/foil sector will continue its internal divergence. Large export margins and strong overseas orders will sustain export momentum, while mills actively restock on price dips.
Written by Regina WANG
wangjiaqie@mysteel.com
