SHANGHAI, Oct. 24 (SMM) –A recent SMM survey of 22 major domestic copper smelters (total capacity: 4.80 million mt/yr) revealed the following insights:

1) Operating Rates in September Fall to Yearly Low
The average operating rate during September at the 22 major domestic copper smelters surveyed was 85.50%, the lowest level for 2011. Copper prices experienced rapid declines in September, with a cumulative price drop of 24.42% for LME copper, the second largest one-month decline since the 34.87% drop in October 2008. Copper price declines during September depressed copper smelter interest in production. Besides, operating rates at copper smelters were generally high during 2011, with the average operating rate for the first eight months near 90%, and able to reach annual production targets. As a result, copper smelters chose to scale back production during September when copper prices plunged.

In addition, current smelting costs and the price slump in September caused an inversion in the price relationship between scrap and refined copper, with some small scrap copper smelters choosing to suspend production or conduct maintenance. 

2) Refined Copper Inventories Grow, Scrap Copper Supply Remains Tight
Refined copper inventories at the surveyed copper smelters were 62,950 mt, up nearly 8,000 mt from August levels. This was the first increase following continuous declines since May’s yearly high and was due largely to significant declines in copper price declines. In addition, downstream producer caution also depressed spot copper consumption. As copper prices fell sharply during September, copper smelters, especially those using scrap copper as raw materials, were unwilling to sell at low market prices, forcing them instead to cut production or hold goods, which in turn increased overall refined copper inventories at smelters.

Production at Japanese copper smelters has also recovered from the March earthquake and tsunami, so supplies of spot copper concentrate became tight. As a result, TC/RC offers for spot copper concentrate fell to between USD 55-70/mt (cents 5.5-7.0/lbs) in September and were down from August levels. #1 bare bright copper prices in late September also declined by nearly RMB 14,000/mt since early September, so scrap copper cargo-holders became more reluctant to move goods due to growing losses, only exacerbating tight scrap copper supply.