China Faces Shortage of Scrap Copper: Why and So What?

The supply of scrap copper on China’s market has been tightening all year. This shortage may be attributed to four factors.

1. Slowing recycling activity overseas has cut available supply: Following a surge in new plant construction and renovation in the US over the past few years, 2012 saw a marked slowdown, significantly reducing the amount of material entering recycling. Economic weakness in Europe has also crimped the supply of scrap copper. Collectively, this has manifest as a slowing of scrap copper supplies flowing to China’s market.    

2. Rising demand for scrap copper from emerging economies: Many emerging economies benchmark off LME copper prices, which are generally higher than SHFE prices. This has made China less attractive to foreign suppliers with a resulting drop in the volumes shipped to China. 

3. Stricter enforcement by China Customs: China Customs has recently stepped up enforcement of Green Fence Policy. This has led to a pile up of material at the country’s ports and to a rising proportion of shipments being deemed substandard and returned to their country of origin. In consequence, the first four months of 2013 saw the volume of China’s scrap copper imports drop 4.4% YoY.

4. Cargo-holders unwilling to sell against falling prices: Copper prices have dropped rapidly since February, leaving many scrap copper suppliers reluctant to sell. Sales picked back up some when prices bounced back to USD 7,200/mt, but the overall supply on the market increased only slightly and remains on a downward track.

SMM considers the shortage of scrap copper during 1H 2013 as the result of crude smelting expanding at a slower pace than refined smelting. This has forced the market to greater reliance on scrap copper. The tightness in supply is expected to persist through 2H 2013 before new crude smelting capacities come online.  

SMM projects the current shortage in the supply of scrap copper to affect some 100,000 mt in copper smelting capacity and 180,000 mt in copper processing capacity in 2013.