SHANGHAI, Nov. 4 (SMM China) -- A recent SMM's survey of 17 copper plate, sheet and foil smelters (total capacity: 633.1kt/yr; monthly raw material consumption: 52.7kt) revealed the following insights:
1) Monthly Operating Rates
The average operating rate of the 17 copper plate, sheet and foil smelters was 53.0% during October, down 18.5% from September's level, and down 25.5% YoY. Commodity futures prices plunged during October due to the deteriorating US economy, and Chinese domestic copper prices slumped more than 45% after the October National Day Holiday. In this context, the majority of downstream producers have cut operating rates to reduce financial exposure in view of falling orders.
2) Consumption of Raw Materials
The monthly copper consumption of the 17 smelters was 27.75 kt, with consumption of refined and scrap copper at 25.25 kt and 2.5 kt, respectively, a ratio of 10.1:1.
3) Inventories of Raw Materials
According to the survey, the 17 smelters were holding raw materials inventories accounting for 24.3% of monthly copper consumption. Smelters were purchasing cautiously due to wide and frequent copper price fluctuations. Inventories of raw materials at smelters remained low, but the proportion of raw material inventories of monthly did not fall significantly, since decreases in copper consumption were smaller than drops in purchases of raw materials.
4) Copper Plate, Sheet and Foil Smelters Suffer More Losses Due to Broken Contracts
The survey revealed that 65% of copper plate, sheet and foil smelters had suffered losses as buyers broke existing contracts due to the plunging copper prices. However the proportion of broken contracts to overall contracts was not high. Smelters said after receiving a deposit at 20-30% from buyers, some buyers would rather break the contract and forfeit the deposit in face of the bearish copper prices. This loss of business only added to excising financial losses from growing inventories at copper smelters. In this context, copper smelters have raised the deposit levels and were more cautious in purchasing raw materials, now only on the basis of received orders, in order to avoid financial exposure. The reduction in the operating rates is one measure to lessen the extent of losses.
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