SHANGHAI, Dec. 12 (SMM) –A recent SMM survey of 21 major domestic copper wire rod producers (total capacity: 3.56 million mt/yr) revealed the following insights:
1) Operating Rates for November Hit Yearly High on Inverted Price Differential Between Scrap and Refined Copper
The average operating rate during November at the 21 major domestic copper wire rod producers was 86.8%, up 3.3% from October levels and a yearly high. Based on the SMM survey, operating rates during November at large copper wire rod producers were relatively high at 91.3%, helping increase the average operating rate. The inverted price differential between scrap and refined copper has been expanding since early September, with the monthly average price differential between #1 bare bright (including tax) and refined copper (including tax) rising to RMB 601/mt in October, up from RMB 10/mt in September. The inverted price gap condition continued through November, causing copper rod producers using scrap copper as raw materials to scale back or suspend production. Nevertheless, the inverted price relationship did create some additional demand from copper rod producers using refined copper as raw materials and helped push up operating rates at large producers surveyed by SMM. However, the inverted price differential has eased since early December, and now cargo-holders of scrap copper are becoming less unwilling to move goods due to tight cash flows at the year’s end, which is helping improve demand for copper rod using scrap copper as raw materials. Combined with the negative impact from cash flow shortages at the end of the year, overall operating rates at surveyed copper wire rod producers during December will fall.
2) Copper Wire Rod Producers Cautious Towards Building Stocks
Raw material inventories at the surveyed wire rod producers were 10.8% of production in November, a yearly low and down 2% from October levels. The European debt crisis remains unresolved and China’s Central Economic Working Conference has not yet met. As a result, there are still many uncertainties with regard to government policies during 2012 and combined with soft demand at the year’s end, producers are not willing to invest in raw material inventories. In the time remaining before China’s Spring Festival holiday, the surveyed producers prefer to wait for more guidance from government policies.