August saw a higher-than-expected increase in the operating rate of copper cathode rods in China. Can the traditional peak season in September continue to meet optimistic expectations? [SMM Analysis]

According to the SMM survey, the operating rate of copper cathode rod producers in August was 74.62%, up 4.10 percentage points MoM, higher than the expected value by 1.90 percentage points, and up 4.16 percentage points YoY. The operating rate of large enterprises was 82.64%, medium-sized enterprises 62.08%, and small enterprises 62.39%. (Surveyed enterprises: 61, capacity: 13.877 million mt)

In August, the operating rate of the copper cathode rod industry recorded 74.62%, up YoY by 4.16 percentage points (the operating rate was 70.46% in August last year).

Entering August, copper prices continued to decline. According to SMM data, the average price of SMM #1 copper cathode in August decreased by 4,248.9 yuan/mt MoM from July. The price difference between copper cathode and copper scrap continued to narrow. According to SMM statistics, in August the average price difference between secondary copper rods in Jiangxi and copper rods for electrical use in east China was 640 yuan/mt, down 79 yuan/mt MoM. Due to the lower focus of copper prices in August, downstream orders increased significantly, while the operating rates of secondary copper rods had yet to recover. Overall, despite the ongoing weakness in the real estate sector in August and the decline in orders for enamelled wire due to the off-season, the significant decrease in copper prices led to a large release of orders. Consequently, the operating rate exceeded expectations, and given the weak order performance in August last year, there was also some YoY growth in August 2024.

The raw material inventory/output ratio of copper cathode rod makers in August was 6.96%. The finished product inventory/output ratio for copper cathode rod makers in August was 10.47%.
Due to increased production scheduling and improved consumption, the raw material inventory of copper cathode rod makers slightly increased by 0.04 percentage points, while the finished product inventory decreased by 1.06 percentage points.

The operating rate of copper cathode rod makers is expected to be 75.86% in September.

In early September, copper prices plummeted significantly amid recession concerns. After copper prices once again fell below 72,000 yuan/mt, downstream orders increased noticeably. Most copper cathode rod makers expect a significant improvement in production and sales in September. Despite the Mid-Autumn Festival occurring in September, many companies predict that production schedules should not be heavily impacted due to anticipated consumption release and pre-holiday stocking in October. Additionally, it is noteworthy that the operating rate of recycled rod makers still appears pessimistic. According to the publicly available bond issuance data from various provinces, the issuance of new special bonds exceeded 500 billion yuan in August, marking the peak monthly scale of this year. In July and August, many provinces intensively issued "special" new special bonds for existing projects, debt resolution, etc. During the recent China-Africa Cooperation Forum, it was also proposed to support African countries with infrastructure and new energy projects as well as the provision of technical products. From a macro perspective, this might also provide confidence support for future consumption. The operating rate is expected to achieve growth in September, up to 75.86% MoM.