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[SMM Analysis] Copper scrap enterprises are struggling on July 1. What is the impact of the import restrictions on the "six types" of scrap copper in the second half of the year?
Jun 12,2019 17:14CST
translation
Source:SMM
According to SMM research, since the middle and late May, many scrap copper enterprises said that the situation is difficult, scrap copper prices have led to a substantial increase in waste costs, profits have been squeezed, so do not rule out the intention to stop production. This can be seen from the start-up rate of copper scrap rod enterprises. According to SMM monthly data, the operating rate of scrap copper rod enterprises in April was 66.98%, down 4.27% from the previous month and 7.12% from the same period last year.
The content below was translated by Tencent automatically for reference.

SMM6, 12 June: according to SMM research, since the middle and late May, many scrap copper enterprises have said that the situation is difficult, scrap copper prices have led to a substantial increase in waste costs, profits have been squeezed, so do not rule out the intention to stop production. This can be seen from the start-up rate of copper scrap rod enterprises. According to SMM monthly data, the operating rate of scrap copper rod enterprises in April was 66.98%, down 4.27% from the previous month and 7.12% from the same period last year.

Compared with the same period last year, there was such a sharp decline. SMM combined with many factors, it is considered that there are the following reasons:

First of all, with the copper price reaching new lows, the price advantage of scrap copper has been greatly weakened, so the monthly average price difference of refined copper in May is also at 831 yuan / ton, resulting in a significant increase in the substitution effect of refined copper on scrap copper. The rapid rise in the operating rate of refined copper rod enterprises in May can reflect to some extent that refined copper is seizing the original market share of scrap copper since May. According to SMM monthly data, the operating rate of refined copper rod enterprises in May was 81.70%, up 1.28% from the same period last year and 3.42% from the previous month.

"View the historical data of start-up rate of SMM fine copper rod making enterprise

The reduction of scrap copper market share is also affected by the reduction of domestic scrap copper supply, so in the case of reduced supply, the price of scrap copper has gone up, further narrowing the price gap of refined scrap.

Weak consumption also makes it difficult to maintain the original market size of scrap copper. SMM monthly survey results show that the national scrap copper consumption of SMM in April was 188900 tons, a decrease of 7.85% (16100 tons) compared with the previous month.

Moreover, since the value-added tax cut in April, the average ticket point in the scrap copper market has been reduced from 7.5% to 6.5%, down by only 1%. In fact, in order to maintain the level of fine scrap price difference before the tax cut, the scrap ticket point should be reduced by 1.5%. However, in fact, due to the relative resistance of copper scrap points, the decline of the tax price of scrap copper is lower than that of electrolytic copper, resulting in a narrowing of the price gap of refined copper, which suppresses the price advantage of scrap copper.

At present, domestic copper scrap enterprises find it difficult to move forward for another reason, because the equipment of the scrap copper rod factory is different from that of the refined copper rod factory, and it is difficult to innovate the equipment in a short period of time, so even if there is no advantage in the price and the profit is squeezed, it is also very difficult to change the production direction. at present, it seems that it is helpless to cede the original market share of scrap copper rod to the refined copper rod market.

The supply of domestic scrap copper is limited, which gives imported scrap copper the opportunity to enter the domestic market. Therefore, there is an "import grab" effect in the scrap copper import market. According to SMM data, the amount of scrap copper imported in April this year was 144100 tons, a sharp increase from the previous month. Imports of scrap copper from January to April this year increased by about 30,000 tons over the same period last year, an increase of 7.33 percent over the same period last year. To some extent, this can alleviate the shortage of domestic scrap copper supply.

However, with the approach of July 1, the "six types" of copper scrap will be changed from unrestricted import solid waste to restricted import solid waste, only the processing waste enterprises with import approval and the enterprises in the recycling park can be imported. As the current import approval of scrap copper is still uncertain, so the import of scrap copper may also be affected by policy changes, it is difficult to say to what extent it can contribute to the insufficient supply of domestic scrap copper.

With the gradual tightening of domestic control policy on "foreign garbage", China has restricted the import of low-grade raw materials since the beginning of this year. Among them, the import of "seven types" of scrap copper has been completely banned. At present, the scrap copper that can be imported only contains "six types of" scrap copper, that is, all kinds of copper scrap. However, from July 1, the import of high-grade scrap metal will also be restricted, that is, "six types" of copper scrap will be changed from unrestricted import solid waste to restricted import solid waste. "correlation analysis-[SMM heavyweight] what are the criteria for the conversion of scrap copper to resources? -based on the analysis and prediction of the types of "six types" of copper scrap

To sum up, SMM expects that in the second half of this year, if copper prices do not have the support of macro and fundamental good news, the weakening of scrap copper price advantage will continue to stimulate the consumption of refined copper to a certain extent, but it should be noted that although enterprises will gradually change their habits of using scrap copper in the context of tighter environmental protection policies, the volume of scrap copper market is after all limited, so the boost to refined copper consumption remains to be seen.

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