Why Guangdong Saw Sharp Inventory Declines Despite Eased Electric Restrictions?

SHANGHAI, Aug 24 (SMM) – Copper cathode inventory in Guangdong has declined sharply even as smelters have resumed normal production after power restrictions eased. Low arriving shipments and high shipments from Guangdong are believed to have driven the decline.  According to SMM statistics, Guangdong's social copper cathode inventory stood at a three-year low of 37,600 mt as of August 23, a decrease of 66,199 mt from the highest level of the year, and 27,500 mt lower than the same period last year.

On the supply side, arriving shipments remain low. There are still two smelters (with a total annual production capacity of 400,000 mt) in the surrounding areas of Guangdong closed for maintenance, which has had a huge impact on the supply side. We expect the volume affected by the maintenance in August to be as high as 23,000 mt.

Although the impact of the power curtailment in Guangxi has been reduced, the affected output is estimated at only 3,000 mt.

Shipments arrivals of imported copper remain low.

On the demand front, the price spread between copper cathode and copper scrap shrank remarkably recently due to sharp declines in copper prices and tight copper scrap supply. As of August 23, prices of #1 bare bright copper were 51 yuan/mt higher than copper cathode prices. This had driven downstream companies to switch to purchase copper cathode. The price spread between the two expanded to nearly 4,000 yuan/mt at the beginning of the year.

Recently, the environmental protection inspection team arrived in Guangdong, and downstream enterprises reduced use of copper scrap to meet environmental protection standards.

Meanwhile, lower direct delivery from smelters to downstream buyers prompted downstream buyers to take cargoes from warehouses, resulting in big growth in shipments from Guangdong.

Recent shipments have remained at high levels amid high operating rates at copper rod plants using copper cathode, which are the highest level in recent years.

Copper inventory in Guangdong will continue to decline, and the spot premium will inch higher. Overall supply will remain tight, while demand is set to remain stable.