Copper Prices Dipped below Copper Scrap Prices, Raising Operating Rates at Copper Cathode Rods Plants by 3.06 Percentage Points in August

Operating rates in August were 4.14 percentage points higher than expectations in July. Many cable companies and motor factories in Yangzhou were forced to reduce and suspend production in August due to lockdowns amid the pandemic. Therefore, demand for copper rods was suppressed to a certain extent. The overall performance of orders in the first half of August were gloomy.

However, as copper prices fell to around 66,000 yuan/mt in August, downstream cable and enamelled wire companies increased their purchases at low prices. Meanwhile, sellers held back goods amid tight copper scrap supply. As such, after-tax prices of bare bright copper exceeded copper cathode prices at one point.

The average price of copper rod meeting national standards in Jiangxi was 610 yuan/mt higher than the average SHFE copper price in mid-August. As copper rods produced with copper scrap lost price advantage, most downstream cable companies turned to purchase copper cathode rods. Therefore, orders at some copper rod producers were hectic in the week, and many copper rod factories scheduled their orders for the week to the end of the month, which greatly boosted consumption of copper cathode rods.

We believe that the drop in copper prices has temporarily boosted orders for copper cathode rods, but the narrower price difference and copper prices falling below copper scrap prices were the main driver.

Raw material inventory/output ratio at copper cathode rod enterprises at 5.7% in August

Raw material inventory/output ratio of copper cathode rod enterprises was 5.7% in August, a decrease of 0.27 percentage point from the previous month. According to the survey, the current copper price is still at a relatively high level, and the willingness of enterprises to restock raw materials is still low.

Operating rates at copper cathode rod enterprises to stand at 75.27% in September

Operating rate at copper cathode rod producers is expected at 75.27% in September, up 0.27 percentage point from the previous month. Although September is the traditional peak season, most companies lack confidence, according to the survey.

With the high volatility of copper prices and weak consumption from the power sector, demand for copper rods is unlikely to increase significantly. However, the absence of disruptions from the pandemic in September and the favourable price difference between copper cathode and copper scrap will raise operating rates slightly from the previous month. But operating rates will not be as good as the peak season level of the same period in previous years. (Note: Operating rates of copper rods in September 2018 and September 2019 were 80.13% and 76.81%, respectively)