SHANGHAI, Dec. 19 (SMM) –SMM's most recent survey of 22 major domestic copper smelters (total capacity: 5 million mt/yr) yielded the following insights:

1) Operating Rates for November Remain Low
November's average operating rate at the 22 major domestic copper smelters surveyed was 83.56%, down a slight 0.45% from October and a new low for 2011. Jiangxi Copper, one of China' largest copper smelters, conducted maintenance operations in November, leading to a decline in its output. Most of the other copper smelters surveyed were unwilling to keep operating rates high at prevailing low spot TC/RC for copper concentrate since they had already basically met their production targets for the year. Moreover, the inverted price relationship between scrap and refined copper that emerged back in September extended through November, causing losses for smelters using scrap copper as a raw material input, who therefore opted to partially or completely suspend production.

2) Copper Smelters Become Less Willing to Move Goods on Falling Spot TC/RC for Copper Concentrate 
Refined copper inventories at the surveyed copper smelters rose to 74,550 mt last week, up 7,750 mt from the SMM's survey result last month and rising for a third consecutive month. The pressure on copper smelters to move goods eased when operating rates settled in at relatively low levels. Moreover, spot copper traded at discounts last week and, since the supply of imported copper has increased recently, spot copper discounts are likely to expand. In this context, copper smelters are reluctant to sell. Combined with waning demand from downstream producers at the year-end, refined copper inventories increased over the past week.

The lowest spot TC/RC for copper concentrate has declined to between USD 20-30/mt (cents 2.0-3.0/lbs) at present, down significantly from the USD 70/mt (cents 7.0/lbs) level for long-term contracts for 2H 2011, propelling copper smelters surveyed to only build up copper concentrate inventories to maintain normal production. Despite an improvement in the inverted relationship between scrap and refined copper during December, copper smelters still face losses at prevailing scrap copper prices, causing them to keep scrap copper inventories at relatively low levels.