Where Does the Increment of Copper Cathode Come from in Q1-Q3 2021?

SHANGHAI, Sep 15 (SMM) – China’s copper cathode output increased significantly on the year in Q3 2021. According to SMM survey, China's copper cathode output from January to August totalled 6.69 million mt, an increase of 11.6% year on year, and the growth rate exceeded market expectations.

Among the increment of copper cathode output, 305,000 mt or 44% was produced with the blister copper extracted from copper concentrate, 133,000 mt or 19% was produced with copper anode, and 255,000 mt or 37% was produced with copper scrap.

Therefore, the major increment was contributed by the blister copper production with copper concentrate. Domestic smelters did not construct new projects for blister copper smelting in 2021. However, some new capacities were put into production, some smelters conducted technical transformation, and some smelters recovered from the pandemic or financial difficulties, which all brought about the higher copper concentrate demand.

For example, Chifeng Jintong Copper Industry’s 200,000 mt of crude smelting capacity project was put into operation in October 2020. Tongling Nonferrous Metals and Fujian Zijin completed the expansion of refining capacity at the beginning of the year. Production capacities of smelters in Jinchuan and Zhongtiaoshan were expanded after the technical transformation. The capacity utilisation rate of Yun Copper and Zhejiang Fuye were were low in the previous year due to the inventory backlog of sulphuric acid amid the pandemic, and the demand for copper concentrate increased this year.

The growth in copper anode imports and the consumption of domestic copper anode stocks have provided an increase of 133,000 mt in copper cathode output.

Compared with the blister copper produced with the concentrate, copper scrap contributed more to the marginal increase in the copper cathode output. From January to August, the copper cathode output from blister copper produced with copper concentrate increased 6.6% on the year, while that from copper scrap increased 37.3%. However, the production with copper scrap has declined since the middle of this year.

In the first half of the year, the overall copper price kept rising, which brought about an increase in the supply of copper scrap. The wider price spread made copper scrap more cost effective, so smelters increased the purchase of copper scrap and produced more enthusiastically.

But at the same time, high copper prices significantly drove up the consumption of copper scrap, resulting in a tighter supply of copper scrap in the second half of the year, which can hardly meet the rapidly expanding demand. The imports of copper scrap cannot fill the domestic supply gap completely due to the strict pandemic control measures at ports, the limited shipping capacity, and the strict import inspections.

In the second half of the year, the shortage of copper supply is difficult to be alleviated. The price difference between the copper scrap and cathode narrowed to less than 1,000 yuan/mt, and the scrap price once exceeded cathode price in August. The profit of copper scrap smelting further shrank, which weakened the motivation of copper smelters to use copper scrap as raw materials.

SMM believes that the upward trend of TCs for copper concentrate spot and the profitable sulphuric acid prices have driven domestic smelters to maintain a high utilisation rate of the available smelting capacity. There is limited room for the expansion of copper concentrate demand, as the remaining capacity will be under maintenance or winter storage adjustments. Therefore, in the next four months, the supply of imported copper anode and copper scrap will become the main variables affecting copper cathode production.

Copper anode import is currently affected by the shipping restrictions in South Africa, and the shortage of copper scrap restrains domestic copper anode production. As the scrap supply is unlikely to grow in the short term, domestic copper anode output is hard to increase significantly.

After the import restrictions are lifted and the copper scrap supply grows, the increment of the copper cathode produced with imported copper anode and copper scrap will account more in the total increase.