Firm invoice costs to weaken copper scrap consumption

SHANGHAI, Apr 8 (SMM) – The appeal of copper scrap across Chinese markets is expect to weaken as high costs for value-added tax (VAT) invoices prevent price spreads between copper scrap and copper cathode from widening. This is expected to offer some support to the consumption of copper cathode.

The average rate at which copper scrap consumers in China purchase VAT invoices for tax-excluded copper scrap stood at 6.5% after the VAT cuts took effect on April 1, down only 1 percentage point from 7.5% before the cuts, SMM learned.

Compared to levels before the tax cuts, tax-included prices of copper cathode dropped 515 yuan/mt, while prices of Guangdong 1# bare bright copper, a typical kind of copper scrap,  that include tax invoice costs slid by 198 yuan/mt.

This narrowed the price spread between copper cathode and copper scrap by 317 yuan/mt to 961 yuan/mt. The rate for copper scrap invoice costs should fall at least 1.5 percentage points to maintain the tax-included price spreads between copper scrap and copper cathode from levels seen before the tax cuts.  

While the Chinese copper scrap market has yet to see supply shortages, firm copper scrap invoice costs reflected market concerns about future supplies.

SMM learned that copper scrap suppliers appeared reluctant to offload cargoes when prices of copper scrap fell. Copper scrap sellers are inclined to hold offers firm and this would keep price spreads between copper cathode and copper scrap from expanding beyond 1,500 yuan/mt.

While the current price spreads are insufficient to bolster consumption of copper cathode, the competition from copper scrap that copper cathode faces weakens.

Copper scrap supplies in China, except for imported materials, do not come along with tax invoices. This forces copper scrap buyers to purchase VAT invoices to obtain credits for the taxes they paid on inputs.

The rate at which copper scrap consumers purchase the invoices often increases when copper scrap supplies tighten.