The Copper Anode Market Experienced Significant Fluctuations This Year: Will There Be a Turnaround in Q4? [SMM Analysis]

Last week, SMM reported blister copper RCs in south China at 700-900 yuan/mt, with an average of 800 yuan/mt; in north China, the RCs were 900-1,100 yuan/mt, averaging 1,000 yuan/mt. The processing fee for domestic copper anode was 350-450 yuan/mt, averaging 400 yuan/mt. Compared to the highest average of 2,100 yuan/mt for blister copper RCs in south China this year, it has dropped by 1,300 yuan/mt; and compared to the highest average of 1,400 yuan/mt for copper anode processing fees, it has decreased by 1,000 yuan/mt.

In May 2024, as copper prices surged and hit a historical high, secondary copper holders massively sold off their inventories, significantly increasing the supply of copper scrap, leading to a rise in the production of secondary copper anode. Meanwhile, the soaring copper prices suppressed downstream consumption, causing the discounts against futures contract for secondary copper rod to remain higher than the processing fee for copper anode. This prompted many secondary copper rod plants to install disc casting equipment and produce large quantities of copper anode for smelters. Consequently, blister copper and copper anode inventory at smelters rapidly increased, and processing fees continuously climbed to recent highs.

Subsequently, as copper prices began to fall from their peak, secondary copper holders started to hold back cargoes. Additionally, the Fair Competition Review Regulations came into effect on August 1, but the specific implementation measures at the local level remain unclear. This led to an increase in the taxed copper scrap prices and a tight supply, causing many copper anode producers to reduce or halt production, resulting in a rapid decline in the supply of secondary copper anode and a continuous drop in processing fees.

As Q3 is coming to an end, how will the copper anode market evolve in the future?

First, from the perspective of processing fees, SMM believes that the downside potential is limited. The current market shortage is mainly driven by supply contraction, and with the total supply being limited, further reducing processing fees is not meaningful. The current spot processing fees are already close to the cost line, forcing some smelters to cut production to avoid losses.

Second, from the market supply-demand structure, a shift to a more relaxed state is unlikely. On the supply side, the tight situation of copper concentrate is unlikely to improve significantly, and the production of copper anode from domestic and imported ore is not expected to increase. Additionally, if copper prices continue to rise in Q4, the supply of copper scrap will increase; otherwise, the shortage will worsen. Furthermore, the Fair Competition Review Regulations' unclear implementation will impact whether secondary copper anode producers can resume production, adding uncertainty to the market. On the demand side, as Q4 approaches, new and expanded projects are expected to start, and smelters will increase their demand for copper anode to meet year-end production targets. Therefore, overall demand expectations are high. In summary, given the significant supply uncertainty and high demand expectations, the copper anode market is unlikely to return to its previous ample state.