Copper Scrap Market Sees Sharp Adjustments as Prices Fall, Supply Constraints Persist

This week (Sep 14-Sep 17), the copper scrap market underwent sharp adjustments after copper prices pulled back significantly from last week's high above 112,000 yuan/mt, bottoming out at 108,370 yuan/mt by the weekend. The most-traded SHFE copper contract continued to slide from 108,240 yuan/mt at the start of the week to an intraweek low of 107,320 yuan/mt. After the contract rollover, with the US Fed rate hike delivered and market sentiment digested, copper prices stopped falling and stabilized, rebounding to 108,370 yuan/mt. The weekly price center moved notably lower WoW. Supply side, the secondary copper raw material market continued to see low social inventory. Suppliers, having sold persistently during last week's price surge, held limited available material. As copper prices fell, they generally held prices firm and held back from selling, with weak willingness to sell. Material purchased was mostly used to fulfill prior orders rather than add new supply to the market, limiting the decline in raw material prices and even driving a countertrend rebound. Secondary copper raw material prices fell first and then rose during the week, dropping 300 yuan/mt WoW at the start of the week, then another 600 yuan/mt, before rebounding 300 yuan/mt on each of two consecutive days after prices stabilized post-rollover. Overall, prices showed notable resilience. The price difference between primary metal and scrap narrowed from 2,481 yuan/mt to 2,125 yuan/mt before rebounding to 2,621 yuan/mt. Meanwhile, the underlying constraint of limited tax-inclusive supply remained unresolved, with tax-inclusive invoice tax rates holding high at around 12%. Secondary copper rod enterprises urgently sought tax-inclusive secondary copper raw material purchases, but domestic social inventory of secondary copper raw material remained low, actual procurement volumes were extremely limited, and market circulation stayed subdued. On the import side, high payable indicators for overseas copper scrap and the push in Europe and the US toward domestic recycling of renewable resources tightened cross-border flows of high-grade copper scrap, limiting the relief from import growth on the domestic tightness. Overall, the supply side was characterized by "holding prices firm and limiting sales as the main theme, with price cuts to move material as secondary."

Against this backdrop, purchase willingness among secondary copper rod enterprises recovered notably as copper prices pulled back. According to SMM data, the operating rate of secondary copper rod enterprises was 10.27% this week, up 1.53 percentage points WoW but down 13.06 percentage points YoY. Secondary copper rod enterprises, having taken on high-priced orders during last week's price surge, entered the raw material locking and delivery cycle. To dilute costs and ensure delivery of prior orders, rod enterprises urgently sought to buy the dip in low-priced secondary copper raw material to restock this week. The procurement sentiment index rose from 1.82 at the start of the week to an intraweek high of 1.92-1.95, with particularly active searching for tax-inclusive secondary copper raw material supply. However, elevated raw material prices directly pushed up production costs for secondary copper rod. Finished rod quotations against futures shifted from discounts to premiums. The average premium of secondary copper rod prices in Jiangxi against futures reached 153 yuan/mt. The average price spread between primary and secondary copper rod was extremely compressed to 766 yuan/mt, down 1,162 yuan/mt WoW, and briefly fell to an extremely low 300 yuan/mt mid-week. The economic substitution advantage of secondary copper rod was essentially lost. As a result, the average weekly gross profit calculated by SMM's secondary copper rod sales gross profit model was only 493 yuan/mt, down 507 yuan/mt WoW, severely squeezing corporate profitability. End-user wire and cable enterprises showed weak purchase willingness, and overall market transactions were mediocre, with only essential restocking and delivery of prior orders. The week was marked by a stalemate of "rod enterprises wanting to buy, suppliers unwilling to sell."Overall, the core contradiction in this week's copper scrap market is a structural mismatch between "the pullback in copper prices triggering restocking demand from rod producers" and "low raw material inventory, suppliers holding prices firm, and scarce tax-inclusive supply": copper prices retreated from a high of 112,000 to around 107,000, providing rod producers with a window to lock in raw material costs at lower levels, and purchasing sentiment recovered notably; however, the underlying constraints of low social inventory of copper scrap and inherently limited tax-inclusive supply remain unresolved, with suppliers holding back from selling and holding prices firm amid falling prices, causing raw material prices to fall far less than copper cathode, compressing the price difference between copper cathode rod and secondary copper rod to a non-economic range below 1,000 yuan, severely limiting the substitution of copper cathode rod by secondary copper rod. Looking ahead, the pattern of raw material prices resisting declines and holding firm is unlikely to see fundamental improvement, and the secondary copper rod market will continue to exhibit a weak equilibrium of "rod producers restocking on rigid demand, suppliers holding prices firm and holding back from selling, low price difference between copper cathode rod and secondary copper rod, and pulsed transactions"; a genuine recovery in physical consumption still awaits the price difference between copper cathode rod and secondary copper rod returning to an economic range above 1,500 yuan/mt, or a substantial decline in invoice costs to rebuild reasonable profit margins for rod producers.