Another important reason is scrap copper tightness. Green Fence Policy by
Some smelters announced their production cut plan in May, such as Jiangxi Copper and Yantai Penghui Copper, which counts about 12,000 mt of refined copper output each month. Other smelters using scrap copper as raw materials also face the risk of output reduction.
Tightening scrap copper not only reduces supply of refined copper, but hampers production at copper processers. While smelters could import anode copper to offset scrap shortages, processers has no choice but cut production or shift to refined copper as raw materials. That means strong demand from copper processing enterprises serves as one bigger driver for high copper premium compared with copper smelters.
According to SMM estimate, scrap copper consumption from January to April 2013, down about 53,000 mt YoY, and processers are more influenced by the shortage of scrap.
Another reason for high premium is the market strategy by smelters. In 2013, some Chinese smelters have expanded their exports, reducing supply to domestic market. Besides, long-term contracts between traders and smelters have dropped this year, making smelters more flexible in supply control. It is told that, some smelters hold back their refined copper inventories, pushing up the premium.
SMM forecasts that copper premiums will return to normal level, as the high-demand season will end in June, and as the influence of scrap shortages on processers will be released. And if the news about smelters holding back inventories is true, they will prefer to sell their goods at high premiums. Moreover, the arrivals of overseas refined copper will also weigh down the premiums.