China’s scrap import restrictions unlikely to boost copper prices in Q3 as more quotas granted

SHANGHAI, Aug 15 (SMM) – Copper prices in the third quarter of the year are unlikely to receive a boost from the Chinese government’s tighter grips over scrap imports, as import quotas for newly-restricted high-grade materials that have been granted so far will keep the domestic market well-supplied.

The China Solid Waste and Chemical Management Centre, a unit of the Ministry of Ecology and Environment, on Wednesday August 14 issued a fresh batch of import quotas for so-called Category 6 copper scrap, which allows firms from regions including Guangdong, Tianjin and Shandong to move a total of 87,680 mt of such materials into China.

Restrictions on imports of Category 6 copper scrap came into force on July 1, which means that importers without quotas could not keep buying.

The latest batch of import quotas is the third batch for the newly-restricted Category 6 copper scrap, and the cumulative total from the three batches accounted to 452,600 mt, which equates to 363,900 mt in Cu content, with a grade of 80.42% that is the average Cu content of imports in the first half of 2019, SMM calculations showed.

Customs data showed that China’s copper imports in the third quarter of 2018 contained 322,800 mt of copper, which is 41,100 mt less than the estimated volume from the issued import quotas.

This, together with an increase of 106,200 mt in imports in the first half of 2019, suggests that copper scrap in China is unlikely to be undersupplied in the third quarter, easing jitters across copper users.

The initial batch of quotas, issued in late June, accounted for the majority of 53% of the total, mostly for firms in major metal-recycling hubs, Ningbo and Taizhou in east China’s Zhejiang province. Most quotas in the second batch were awarded to another key metal-recycling province of Shandong.

About 91% of quotas issued so far were allocated to Zhejiang and Guangdong, home to most Chinese copper scrap recyclers. Zhejiang users accounted for 59% of the total, while Guangdong took up 32%.

SMM expects limitedly more import quotas to be granted for the third quarter, as major hubs have almost all been covered.

Only a sizable scrap shortfall will likely bolster copper prices, as environmental pressure and scrap import restrictions have sharply lowered copper scrap’s contribution to copper consumption in China in recent years, SMM believes.

The domestic copper scrap market has been quiet since April, which supported demand for copper cathode, resulting in stable spot copper discounts or premiums.

Lower copper prices held scrap sellers from offloading their cargoes, while weakness across copper end-users dented demand for copper scrap.