Impacts from Electricity Restrictions Appear in Scrap Copper Market

SHANGHAI, Sep. 15 (SMM) -- China’s Central Government has strengthened efforts in energy conservation and emissions reduction in order to meet targets set in the 11th Five-Year Plan. Since late July, restrictions on electricity supplies were imposed throughout the country.  Since importing, sorting, dismantling, and trading of scrap copper is not a large consumer of electricity, any direct negative impact from energy restrictions was limited. However, the scrap copper sector is still influenced by downstream processing enterprises which have been negatively affected by the policies.

SMM believes electricity restrictions did not affect the scrap copper sector since most operations are manual. However, traders in some regions point out that demand from processing enterprises under energy restrictions is down. The impact will vary from region to region due to differences in policies by local governments.  At present, producers in Zhejiang, Jiangsu provinces and Shanghai are suffering the most under a uniform policy which provides electricity one day and cuts off supply the next.  Some enterprises, however, are allowed some flexibility in that electricity is provided for four days and then cut off the remainder of the week. 

Electricity restriction policies in Jiangsu and Zhejiang provinces have negatively affect operating rates in some downstream copper processing enterprises, causing buying interest for scrap copper to fall. Copper processing enterprises in Hebei province are not so heavily affected, as local steel and concrete enterprises have been under strictly supervision in electricity restriction policy by the local government, and with limited attention to local copper processing enterprises. Some privately-owned smaller factories in Guangdong province are affected to some extent, but normal sales from scrap copper traders can still be generally guaranteed. What concerns local traders more are transportation restrictions, as well as stricter import and export inspections as the Asian Games in Guangzhou approach.

Although electricity restrictions have so far only had a significant impact on scrap copper traders in Jiangsu, Zhejiang, and Shanghai, it is still not clear how long the restrictions will last, whether restrictions will be adjusted, or expanded to other regions. SMM believes that the electricity policies will continue until late October or even the end of 2010 in order to achieve targets. Smaller copper processing enterprises will likely continue to face difficulties in both production and operations from not only electricity restrictions, but also from RMB appreciation, and higher financing costs. In this context, scrap copper markets, as an important raw material for the copper sector, will continue to be indirectly affected by the current electricity restriction policies.

(Edited by SMM)