China Copper Cathode Inventory Drops to 6-Year Low, When Will It Rally?

SHANGHAI, Aug 3 (SMM) - According to latest SMM survey, as of August 1, the copper cathode inventory in mainstream areas across the country was only 69,400 mt, a sharp drop of 86,500 mt compared with 155,900 mt in the same period last year, and a new low in six years.

Why has the domestic inventory been constantly falling this year and hit a six-year low? The reasons are as follows:

1. The copper inventory was already at a low level at the beginning of the year, when the copper cathode social inventory stood at 94,900 mt, down 108,900 mt from 203,800 mt at the beginning of 2021, according to SMM statistics. 
2. The inventory did not accumulate significantly after the Chinese New Year, with an increase of merely 129,800 mt, against a growth of 138,900 mt in 2021 and 369,300 mt in 2020.  
3. As of June, the cumulative increase in imports and exports of copper cathode was 58,500 mt and 35,400 mt respectively, and the net increase recorded 23,100 mt. In addition, we expect that the net import increase of copper cathode will be only 10,000 mt as of early August, which is lower than in the same period in the past few years.
4. As of June, the cumulative import increment of copper scrap stood at about 60,000 mt. However, considering that copper prices have fallen sharply in the past two months, cargo holders of both imported and domestic copper scrap will be reluctant to sell in both July and August, resulting in a substantial reduction in the actual circulating volume. This is evidenced by the changes in the recent operating rates of copper rods produced with copper cathode and scrap. The operating rates of copper cathode rods were above 71% most of the time in July, but that of secondary copper rods kept falling throughout the month, and stood at around 36% around month-end. It can be seen that copper cathode was greatly favoured by market players over scrap.
5. The maintenance of domestic smelters in 2022 is concentrated in May-July, which is also one of the reasons for the recent reduction in domestic copper cathode supply.

So when will the domestic copper cathode inventory stop falling and rebound? SMM expects the mid-August at the earliest. The reasons are as follows:

1. Although four smelters (with a total annual production capacity of 1.15 million mt) have all resumed the production, it will still take certain time from the operating rates to return to normal level. It is expected that these smelters will be able to reach full production by August 10.
2. As far as we know, the arrivals of imported copper in late July were at a relatively low level. With the opening of the import window, a number of imported copper will be cleared and enter the domestic market in early August.
3. Low-priced imported copper scrap will also be cleared in mid-to-late August, and the supply tightness of imported scrap will ease.

Nonetheless, the market expects that in August, the domestic downstream demand will also improve compared to July. In other words, there will be increase in both supply and demand, and it is expected that the inventory growth in mid-to-late August will be limited.