Reasons for the Rebuilding of Domestic Copper Cathode Inventories After the National Day Holiday [SMM Analysis]

After the National Day holiday in October 2024, domestic copper cathode consumption weakened from strong levels, with the spot market showing sluggish performance and premiums dropping rapidly. The domestic and foreign trade markets seemed to revert to the situation in H1 2024. In terms of copper prices, the most-traded SHFE copper contract fell continuously from 80,000 yuan/mt to around 76,000 yuan/mt after the National Day holiday, which should have been favorable for consumption. However, from September 30 to October 18, both visible and invisible domestic inventories increased. What caused the inventories to rebuild, and will this trend continue? The following is a detailed analysis.

From the perspective of various growth factors, domestic smelters and major consuming provinces were the main contributors to the inventory buildup during the National Day holiday. Due to high copper prices before the holiday, some processing enterprises reported slow order growth and thus extended the holiday period. Therefore, the days of raw material inventories remained consistent with pre-holiday levels. The expected consumption growth was not evident, and with the large arrival of imported copper acting as a substitute, smelters' premiums were not advantageous, leading to slow inventory reduction at smelters. Secondly, social inventories held by traders increased as overseas importers delayed shipments to mid-to-late October, fearing difficulties in selling and arrivals during the holiday. This resulted in a large concentration of imported copper arriving at ports after the holiday, and the limited match between non-registered, non-standard sources and downstream demand made it difficult to digest, causing social inventories to continue to build. Additionally, the resumption of operations by scrap-using enterprises after the holiday also reduced some consumption growth for copper cathode.

Looking ahead, due to accidents at smelters in China, South Korea, and Indonesia, the short-term supply gap for copper cathode is expected to persist. After copper prices fell in October, the price difference between copper cathode and copper scrap narrowed, making copper cathode more advantageous, and consumption is expected to increase. Based on the apparent consumption in the same period in 2023, copper cathode is expected to show only a slight inventory buildup in October. It is expected that after copper prices fall in late October, end-use sector procurement will increase, and after a brief inventory buildup, market sentiment will recover.