SHANGHAI, May 28 (SMM) – Scrap copper plays an important role in China’s metal industry. China’s produced some 6 million mt of refined copper each year, with about two thirds produced by scrap copper. However, as copper prices kept falling recently, scrap copper suppliers overseas were not willing to move goods, leaving severe scrap copper shortage.

 

Many leading copper enterprises, including Zhongtiaoshan Nonferrous and Penghui Copper, were forced to cut copper production due to tight scrap copper supply. Jiangxi Copper – the largest refined copper manufacturer in China – has halted several production lines.

 

The tightness in scrap copper supply is the result of the sudden decline in international copper prices. Scrap copper prices are determined by refined copper prices subtracting processing fees, so the 9% decline in LME copper prices this year dragged down scrap copper prices, leaving scrap copper suppliers overseas reluctant to sell goods. Besides, the slowing economic growth caused growth of scrap copper supply in developed nations to slow down. Wu Yuneng, who has just conducted a survey of the US copper market last month, said the scrap copper stocks at one large warehouses in the US were 30% lower than previous years.

 

Many steel traders encountered capital shortage recently due to arbitrage through steel products, resulting in billions of bad loans. This has ignited market concerns about financing-driven copper. 

 

Copper inventories at one warehouse in Shanghai bonded area surveyed by SMM dropped from 800,000 mt to 600,000 mt. In addition to stronger copper demand, less interest in financing-driven copper is another contributing factor to the noticeable decline in copper inventories. Sources revealed that many traders raise funds through copper opted to sell goods for cash flow to avoid risk. About 400,000 mt of copper stocked in the warehouse are financing-driven copper.

 

SMM analyst Wang Anning said repeated pledge may not occur in copper industry as copper stocks in bonded areas were under regulation of five foreign warehousing companies.