Policy Disruptions Led to Decline in Copper Scrap Demand [SMM Analysis]

In August, the US Fed adopted a dovish stance on interest rates, and a rate cut is expected in September, with some Fed officials even advocating for an immediate cut. As a result, copper prices rebounded from a low of 70,600 yuan/mt to 75,400 yuan/mt, an increase of 4,800 yuan/mt. In the first month of the implementation of the Fair Competition Review Regulations, local governments had not yet issued specific implementation measures. Consequently, in early August, many secondary copper rod plants chose to halt production and wait for clearer policies before resuming operations. The copper scrap market saw sluggish transactions, and copper scrap traders significantly reduced their inventories by the end of July, subsequently suspending purchases. By mid-August, some secondary copper rod plants resumed operations to fulfill annual contracts or orders on hand. However, due to the potential operational losses caused by policy uncertainties, most companies preferred to import copper scrap with a 13% VAT invoice. This led to a significant increase in demand for invoiced copper scrap, with traders in Ningbo, Zhejiang reporting that bare bright copper prices remained at a discount of 400-500 yuan/mt against the spot market throughout August. Domestic copper scrap supply was affected by the traditional consumption off-season in July and August, coupled with high temperatures, leading to a normal decline in operating rates at dismantling plants. Domestic copper scrap procurement personnel indicated that copper scrap supply was significantly lower YoY. Although some copper scrap holders intended to reduce inventories by the end of July, part of the inventory was purchased in mid-July. The subsequent sharp drop in copper prices greatly dampened the sentiment for selling, leading many to hold onto their stock in anticipation of price increases. After resuming operations, secondary copper rod plants found that imported invoiced copper scrap could not meet their needs. To mitigate operational risks, they sought low-priced copper scrap in the market, but transactions were minimal. This resulted in the price difference between primary metal and scrap remaining at 1,800-2,100 yuan/mt. Despite relatively ample copper scrap supply, secondary copper rod plants still reported shortages. The primary reason was their reluctance to purchase copper scrap at higher prices, as doing so would increase production costs and reduce order volumes from cable customers. Therefore, secondary copper rod plants were unwilling to purchase copper scrap at market prices.

Looking ahead to September, many secondary copper rod plants chose to resume operations at the end of August, mainly due to local government requirements and the hope that the government would quickly disburse July subsidies. Based on current copper scrap price quotes from companies, transaction conditions remain pessimistic. It is expected that in September, secondary copper rod plants will continue to prioritize the procurement of imported copper scrap and domestically sourced low-priced copper scrap.