SHANGHAI, Nov. 21 (SMM) –A recent SMM survey of 22 major domestic copper smelters (total capacity: 5 million mt/yr) revealed the following insights:
1) Operating Rates Hit New Yearly Lows in October
The average operating rate during October at the 22 major domestic copper smelters was 84.01%, a new yearly low. Based on feedback from the surveyed copper smelters, scrap copper cargo holders were extremely unwilling to move goods due to the inversion in the price relationship between scrap and refined copper. Holding scrap copper stocks caused tightness in scrap copper supply and forced some copper smelters to cut or even suspend production. Spot TC/RC for copper concentrate also fell to between USD 30-40/mt (cents 3.0-4.0/lbs), while monthly settlement prices for the most actively-traded copper contract prices for October averaged at RMB 55,300/mt, down 12% MoM, and further depressing interest at copper smelter to raise production.
Since some copper smelters will conduct maintenance during November, SMM believes operating rates at copper smelters will likely continue to fall in November.
2) Declining Spot Copper Concentrate Supply Causes Copper Smelters to Hold Goods
Refined copper inventories at the surveyed copper smelters were 66,800 mt in October, up 3,850 mt from September levels. However, due to sluggish copper prices in October, copper smelters became less willing to sell goods since most smelters expected copper prices to remain at existing levels. Small copper smelters were unable or unwilling to stockpile refined copper due to capital pressures and financial risks from falling copper prices.
At present, negotiations for 2012 TC/RC for long-term copper concentrate contracts are underway and supply of copper concentrate in domestic markets is tight, supporting TC/RC between USD 30-40/mt. Overseas suppliers are hoping tight supply of copper concentrate will be a positive factor during TC/RC negotiations. Meanwhile, although scrap copper prices have fallen recently, the price gap between scrap and refined copper remains inverted, causing copper smelters to reduce or halt production due to low scrap copper raw material stocks.