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SMM: Impact of Supply and Demand of Copper Scrap Materials and Policy Changes on the Spread between the Copper Cathode and Copper Scrap
Jul 25, 2022 13:25CST
Source:SMM
At the 2022 17th China Copper Summit—Copper Scrap Industry Development Forum held by SMM, Wu Xinyong, an analyst of SMM Copper Research Group, gave a detailed analysis of the influence of copper prices and policies on the spread between the copper cathode and copper scrap and predicted the spread in the second half of 2022.

SHANGHAI, Jul 25 (SMM) - At the 2022 17th China Copper Summit—Copper Scrap Industry Development Forum held by SMM, Wu Xinyong, an analyst of SMM Copper Research Group, gave a detailed analysis of the influence of copper prices and policies on the spread between the copper cathode and copper scrap and predicted the spread in the second half of 2022. Wu believed that it was difficult for the narrow spread between the copper cathode and copper scrap to expand to the previous high level amid the falling copper prices, and the low copper prices will cast a negative impact on the spread.
Spread between the copper cathode and copper scrap can be used to show the cost advantages of copper cathode and copper scrap such as bare bright copper.
The spread between the copper cathode rods and secondary copper rods is another embodiment of the spread between the copper cathode and copper scrap. Generally speaking, the spread between copper cathode rods and secondary copper rods stands at more than 700 yuan/mt, that is, the secondary copper rods are 700 yuan/mt lower than copper cathode rods. In this case, downstream wire and cable companies will prefer the secondary copper rods, which may obviously suppress the consumption of copper cathode.
Copper prices determine the change of spread between the copper cathode and copper scrap in the short term

The copper scrap materials do not closely follow the rise and fall of copper prices. The change in copper scrap prices will be slower than that of copper prices due to the profits and losses of copper scrap companies. Therefore, if the copper prices fluctuate greatly, the spread between the copper cathode and copper scrap will expand or narrow sharply.
Influence of the supply and demand of copper scrap materials on the spread between the copper cathode and copper scrap

The supply and demand of copper scrap materials affect the spread, and in the long run, the spread between the copper cathode and copper scrap will return to the fundamentals of copper scrap materials, which reflects the balance of supply and demand.
The influence of policy change on the spread between the copper cathode and copper scrap

Caishui No.40 increases the costs of enterprises such as secondary copper rod producers:

According to SMM's preliminary calculation, after the implementation of Caishui No.40 on March 1, the costs of scrap users in Jiangxi with policy support rose by 1.7%X, where x is the prices of raw materials. After consultation between scrap users and the local government, the final cost increased by about 0.5%X.

The policy does not directly affect the spread between the copper cathode and copper scrap, but the reasonable spread should be correspondingly expanded due to the cost increase.

SMM forecast of the spread between the copper cathode and copper scrap in the second half of 2022

According to customs data, from January to May 2022, the imports of copper scrap materials were 716,100 mt, a year-on-year increase of 6.74%.
Due to the recent decline in copper prices, the overseas suppliers’ reluctance to sell, and the recovery of overseas industries, the quotes and demand for copper scrap rise, while the domestic demand is poor, hence SMM believes that the import volume in the second half of 2022 will be relatively lower.

Since January 10 2022, Malaysia has tightened the standard of imported metal scrap, requiring that the metal content of imported copper scrap should reach at least 94.75%, which gradually affects Malaysia's scrap import, dismantling and re-export business, and the import volume from Malaysia has dropped significantly.

SMM predicts that the domestic supply of copper scrap materials will increase by 3.57% in 2022, with about 140,000 mt in metal content. For the utilisation capacity of copper scrap materials, which has increased rapidly in recent years, the growth rate of supply is lower than that of demand. It can be predicted that copper scrap materials will still be in short supply. The supply of copper scrap materials is more dependent on imports, with imports accounting for about 43.35% in 2022.

It is difficult for the narrow spread between the copper cathode and copper scrap to expand to the previous high level amid the falling copper prices, and the low copper prices will cast a negative impact on the spread.

In the long run, due to the huge production capacity, the growth of copper scrap materials supply is slow, resulting in a relatively narrow spread between the copper cathode and copper scrap, which is not conducive to the production of secondary copper rod plants.

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