Will Refined Copper Lose Favor to Scrap Copper on Multi-Year High Price Spread? SMM Reports

SHANGHAI, Aug. 2 (SMM) –Chinese scrap copper market has been dull in recent years, with scrap copper at no price advantage over refined copper for a long time. However, the situation changed in July when the price spread between the two expanded to multi-year high of over 1,500 yuan per tonne for most of the month. 

Source: SMM

What caused the spread to widen? Will this boost scrap copper use and in turn hit refined copper prices?

Widening price spread boils down to falling demand for scrap copper, SMM explained. 

SMM statistics show about 60-70% of scrap copper demand in China is driven by secondary copper smelters. Secondary copper smelters prefer blister copper as raw materials, given growing environmental pressure, unfavorable price spread between refined and scrap copper, low profit for scrap copper smelting, as well as rising processing fees for blister copper. Growing copper ore supply in recent two years has pushed up processing fees for blister copper, which have been holding firm at above 1,100 yuan per tonne since H2 2014 and are now around 1,500 yuan per tonne. 

Growing environmental pressure has forced many scrap copper processors to shut down in recent years, so scrap copper demand wanes year by year and scrap copper imports also fell sharply. In July, eight provinces were subject to checks by central environmental protection inspection teams. This has forced some scrap copper processors to close, further biting into scrap copper demand and triggering cheap selloffs by suppliers.

Source: China Customs

Refined copper suppliers, by contrast, have been holding offers firm since May. No large spot discounts were reported even when SHFE copper surged. 

Source: SMM

SMM survey found the share of scrap copper use has increased along with growing price spread, but the impact on demand and prices of refined copper is minimal. 

This is because the share of copper processors that rely on scrap copper is small. Moreover, growing environmental pressure is deterring processors from significantly increasing ratio of scrap copper use, SMM noted. 

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