SHANGHAI, Mar 18 (SMM) – Operating rates across Chinese manufacturers that produce copper rods with copper scrap fell 5.83 percentage points from January to stand at 44.47% in February, marking the fourth straight month of declines, an SMM survey showed.
Producers scaled back operations or closed around the Chinese New Year holiday. This accounted for lowered operating rates in January-February. The holiday impact was significant this year as the copper scrap sector suspended for a longer period.
Copper rod producers with scrap as feedstock operated at lower levels at the end of last year as narrow spreads between copper cathode and copper scrap hampered consumption of copper scrap.
However, excluding the seasonality factor, the copper scrap market experienced a brisk February. With strong copper prices, the discounts of copper scrap against copper cathode widened from 888 yuan/mt to 1,551 yuan/mt last month. This improved the appeal of copper scrap and recovered consumption. As profit margins widened, copper scrap sellers who withheld from selling before the CNY break on weak copper prices were keen to let their cargoes go.
The average operating rate across Chinese manufacturers that produce copper rods with scrap is expected to rebound 23.59 percentage points month on month to 68.07% in March. This would be the highest since May 2018.
While copper prices came off from earlier highs in March, the spreads between copper cathode and copper scrap remained above 1,200 yuan/mt while the spreads between copper rods with copper cathode and copper scrap as feedstock stood at around 1,000 yuan/mt.
As consumption recovery lowers inventories at producers, orders for scrap-using copper rods substantially improved, SMM learned.
Robust demand for scrap-made copper rods is set to erode demand for copper cathode-made rods with operating rates across copper rods producers with copper cathode as raw materials falling 3 percentage points in March.
Strong consumption of copper scrap also accounted for growing copper inventories across the nation.
Industrial concentration would be another driver that lifts operating rates across copper rod producers with copper scrap as feedstock in March as the government’s continued firm environment protection initiatives vex small producers.
Some small scrap-made copper rod producers who located in regions near Beijing have been required to cut or suspend production as the two sessions took place in the capital city. SMM learned that they have yet to be allowed to resume production and might shut for good.
