SHANGHAI, Jun 20 (SMM) – Chinese copper rod manufacturers with copper scrap as feedstock continued to operate at lower paces last month as a smaller price advantage of copper scrap expanded losses.
An SMM survey showed that operating rates across scrap-using copper rod producers in China averaged 54.44% in May, down 12.54 percentage points from April and 20.74 percentage points from May 2018. The monthly decline accelerated from a drop of 4.27 percentage points in April.
The appeal of copper scrap-made rod among Chinese consumers further ebbed in May as a shortage of copper scrap amid import restrictions continued to buoy the scrap prices. This, together with intensified US-China trade dispute in May and value-added tax cuts since April that drove down copper prices, cut discounts of scrap against refined copper, and drove consumers to the copper cathode.
The price spread between refined, scrap copper averaged 831 yuan/mt for May, down from around 1,000 yuan/mt for much of April, SMM assessed.
Some rod producers reported the worse performance of the copper scrap-made rod market over the recent years.
The supply of copper scrap was further tightened by the recovery of rod producers earlier this year. Expectations of continued tight supplies bolstered prices of copper scrap in May, and this kept traders from offloading cargoes.
SMM learned that spurred demand for refined copper expanded the decline in copper social inventories, and triggered an inflow of seaborne materials.
A squeeze in demand for scrap was also evidenced by a rebound of 4 percentage points in the operating rate across refined-copper-using rod producers in May, while consumption from downstream power sector remained flat.
Losses are expected to extend the decline in operating rates across scrap-using copper rod producers, to 48.2% in June, down 6.24 percentage points on the month and 27.32 percentage points on the year.
SMM learned that some manufacturers are likely to purchase imported copper scrap in Zhejiang as domestic scrap is hard to procure.
As import curbs tighten scrap supplies, the scrap, refined copper price spread is unlikely to grow if prices of copper remain weak. This means poorer demand for scrap will continue to boost the consumption of copper cathode.