Review and Outlook: China's Copper Rod H1 Earnings Results Released, H2 Consumption Highlights Preview!

With the first half of 2024 already over, after experiencing the extreme volatility in copper prices this year, how did China's consumption perform YoY in H1? What is the actual state of the market? Are there any consumption highlights worthy of attention in the future? A detailed analysis of the operating rate and specific market conditions for copper cathode rod in H1 is as follows:

Reviewing January to June, at the beginning of January 2024, as copper prices declined, there was a brief rebound in the consumption of copper rod made of copper cathode. However, by mid-January, the anticipated pre-holiday downstream stocking did not fully materialize. Additionally, on January 24, the central bank announced RRR cuts, causing copper prices to rise, further dampening downstream stocking desires. At the same time, copper cathode rod makers showed a lack of confidence in post-holiday consumption recovery. After the holiday, entering February, despite some concentrated order releases, overall recovery was still below producers' expectations due to the continued drag from the real estate sector together with debt restructuring policies. In March, after the Chinese New Year and Lantern Festival, the operating rate of copper cathode rod makers rebounded as expected. However, on March 13, the China Nonferrous Metals Industry Association organized a meeting in Beijing with copper smelters. Due to a significant drop in processing fees, news of joint production cuts by several domestic smelters continued to ferment, pushing copper prices to a two-year high. Orders for copper rods made of copper cathode sharply declined, and some producers, under inventory pressure, were forced to cut or halt production, making it difficult to reach the same operating rate as the previous year. Meanwhile, concerns about supply shortages due to production cuts and favorable policies such as trade-in programs in the domestic market led to a trend of copper prices being more prone to rise than fall, adding pressure to subsequent consumption recovery.

Since April, copper prices have surged continuously, surpassing the 75,000 yuan/mt mark and continuing to break through the 80,000 yuan/mt mark. Orders in the real estate and infrastructure construction sectors have remained weak, leading to a strong wait-and-see sentiment among downstream buyers, and increasing financial pressure. Many copper cathode rod makers have successively halted production for maintenance, resulting in lower-than-expected operating rates. In May, copper prices continued to rise, reaching a historical high supported by the COMEX short squeeze. Although favorable policies for replacing old items with new ones and home purchases have gradually been implemented, the actual consumption has not met expectations. Copper cathode rod makers' holiday time during the May Day period and production halts were significantly higher than the same period in previous years, while the price spread between copper rod made of copper cathode and copper rod made of copper scrap remained at historical highs.

After entering June, copper prices significantly declined, leading to a rapid decrease in the price spread between copper cathode rods and copper rods made from copper scrap. Orders that were previously suppressed gradually began to be released. Additionally, with the introduction of new policies in the secondary industry, most copper rod plants using copper scrap as raw material gradually reduced or halted production, waiting to see the specific implementation of subsequent policies. The pressure from copper rods made from copper scrap on copper cathode rods significantly weakened. In July, as copper prices continued to decline, downstream companies continued to release orders, and the operating rate of copper rod production from copper cathode continuously rebounded throughout the month. However, it should be noted that downstream companies still maintained a wait-and-see sentiment amid falling copper prices. Overall, in the first half of 2024, the production and sales performance of most copper cathode rod makers did not meet the targets set at the beginning of the year.

Looking ahead to H2, as the market expects that after the implementation of new policies, the operating rate of the copper rod industry using copper scrap will take time to resume, the social inventory of copper rods made from copper scrap will continue to deplete, and the demand for copper rods made of copper cathode may continue to be released. Meanwhile, downstream wire and cable factories are expected to gradually release the demand suppressed by copper prices and the suspended end-user projects from H1 in H2. Additionally, the government will continue to increase support for the replacement of old equipment and the renewal of large-scale equipment. Although the growth rate is limited, downstream companies expect MoM growth in consumption in H2. SMM will continue to pay attention to the specific implementation of various policies in H2 and bring you real-time market feedback.