"Fluctuating Copper Prices and Tight Supply Squeeze Secondary Copper Industry, Pressuring Upstream and Downstream"

This week, against the backdrop of fluctuating upward copper prices, the secondary copper industry chain showed a complex situation in which extremely tight upstream raw material supply coexisted with persistent negative margins for downstream finished products. In the secondary copper rod market, SMM data showed that the operating rate fell further to 5.45% this week, down 0.38 percentage points MoM and 25.43 percentage points YoY, reflecting extremely sluggish production activity. Although the average price difference between primary and secondary copper rod widened by 338 yuan/mt MoM to 1,037 yuan/mt, and secondary copper rod in Jiangxi returned to a discount against futures, model estimates showed that the average gross sales margin of secondary copper rod during the week remained deeply in the red at -732 yuan/mt, worsening by 395 yuan/mt MoM. The core contradiction lay in the continued structural tightness in secondary copper raw material supply, which severely constrained enterprise production release. Although copper price fluctuations briefly prompted suppliers to sell at high prices during the week, high-quality bare bright copper wire and other materials circulating in the market remained scarce and were insufficient to meet normal production needs. Downstream demand showed a clear "price-spread-driven" feature: when the price difference between primary and secondary copper rod widened, cargo pick-up accelerated and quickly digested finished product inventories; when the spread narrowed, purchasing slowed down. This pulse-like demand highlighted the current fragility of consumption. The secondary copper raw material market also faced pressure from tightening supply. In Guangdong, the tax-excluded price of bare bright copper rose by 1,100 yuan/mt during the week, far outpacing copper prices and directly confirming the shortage of spot cargoes in the market. According to the SMM survey, both secondary copper rod enterprises and large traders generally reported difficulties in purchase and low inventory. Many dismantling plants and recyclers held back from selling and waited for copper prices to return above 100,000 yuan before selling. This strong reluctance to sell, coupled with elevated invoice tax rate costs, caused the price difference between primary metal and scrap to swing repeatedly between positive and negative territory, and tax-included secondary copper raw material prices trading at an inversion has recently become the norm. The import market was also pessimistic, as offer coefficients from suppliers outside China remained high while domestic traders showed low willingness to accept, and the stalemate between buyers and sellers was expected to lead to a short-term decline in imports. Looking ahead to next week, after the Qingming Festival, the market’s focus will return to price trends and improvements in supply conditions. Copper prices are expected to remain range-bound, while the tight supply of copper scrap is unlikely to be fundamentally alleviated in the short term, and suppliers will continue to hold prices firm. For secondary copper rod enterprises, under the dual pressure of raw material constraints and losses, production will continue to be mainly based on sales, with purchasing as needed, and the operating rate will be unlikely to improve significantly. Recovery across the industry chain will still need to wait for an easing of raw material supply bottlenecks and the emergence of a more stable and more economically viable price difference between primary metal and scrap.