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This is a shimano ultegra 6700 rear mech.

The swing arm/cage is incredibly stiff where it connects to the derailleur. I can just about rotate (red arrows) it a small amount but requires a lot of effort.

enter image description here

I tried to loosen up using an hex key (at the blue arrow), but it seems incredibly soft and I think I may have rounded out the thread, it would not budge.

What can I do? Without any motion in that mech cage means that when I shift into the higher gears on the cassette, it doesn't take up the slack in the chain, causing it to drag along the frame and close to the ground.

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You can try dousing it with solvent, but most likely it will need to be fully disassembled (or replaced). Likely there's a spring inside that has wedged itself into the moving pivot or some such. – Daniel R Hicks Feb 25 '14 at 20:49

Get some WD40 or PB blaster and just shoot the heck out of it. Do this a few times while manually moving it with your hands and it should start moving again. Throw some chain lube in there afterwards to keep it moving nice and clean.

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Let the PB blaster sit for 10 minutes, then apply more PB blaster, then give it a go. Avoid WD40. – hillsons Feb 25 '14 at 20:38
Yeah, PB is more ideal, but you're more likely to have some WD40 lying around and in my experience it works just as well in situations like this – Booker Feb 25 '14 at 20:48
@hillsons Why avoid WD40? Any good reason? – arne Feb 26 '14 at 11:15
As a general guideline, I mean. If you're in a tight spot and WD40 is easiest to reach, then do what you need to do, but I wouldn't necessarily recommend it based on experience and other's opinions. – hillsons Feb 27 '14 at 0:09

Try using something like Gt85 to get rid of any muck that may be inside, this normally works but if it does not then try a thicker bike oil but would not recommend taking it apart any more as some of these bolts can be incredibly soft and easily brocken.

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