The Fair Competition Review Regulations, which came into effect on August 1, 2024, have impacted the copper scrap market in several ways. What is the current market situation?
In the first month of policy implementation, the operating rate of secondary copper rod plants hit a record low YoY.
Since the policy took effect on August 1, secondary copper rod makers in Guixi and Yingtan, Jiangxi, have reduced or halted production. Subsequently, secondary copper rod makers in Anhui, Hubei, Henan, Hebei, and Sichuan also chose to reduce or halt production. According to SMM statistics, in August, many secondary copper rod plants nationwide ceased operations, involving a capacity of over 2.6 million mt. The operating rate in September was only 23.37%, a record low YoY.
Rumors of policy delay lead to a slight recovery in the operating rate of secondary copper rod plants.
In September, rumors emerged that the Fair Competition Review Regulations might be delayed, prompting some secondary copper rod makers to gradually resume production. Coinciding with a significant rise in copper prices in late September, the circulation of secondary copper increased, coupled with downstream stocking demand before the National Day holiday. This led to a slight increase in production enthusiasm among copper rod makers, with the operating rate of secondary copper rod plants rising to 27.76% in September. However, due to the policy's uncertainty and inconsistent local government policies, the industry remains heavily affected, and the operating rate is still at a historical low.
Policy impact persists, and the road to recovery for the secondary copper rod industry is long.
As of mid-October, there has been no significant progress in the specific implementation of the Fair Competition Review Regulations across various regions. Secondary copper rod makers in Jiangxi indicated that the new policy might be delayed, and if reverse invoicing is implemented, the tax rate will increase to 6.2%. Coupled with high copper scrap costs, low profits, the approaching Chinese New Year, the time needed to recall employees, and the difficulty in sourcing raw materials in winter, some companies plan to resume operations in November, while others may delay until after the Chinese New Year. In contrast, companies in Anhui and Hubei are relatively stable and are resuming operations, but local subsidy policies have not yet been issued, limiting market activity. Additionally, some areas in Anhui are strictly inspecting reverse invoicing, forcing companies to reduce or halt production.
Overall, the supply and demand in September showed some improvement, and the resumption of operations by some companies led to a rebound in the operating rate of secondary copper rod plants. However, according to SMM, even if the policy implementation is delayed, the tax rebate ratio for secondary copper rod makers in some regions will decrease compared to before, meaning that company profits will be affected, and market competitiveness will be significantly weakened. Furthermore, after the National Day holiday, copper prices fell, but raw material prices for copper scrap remained high, and the demand from downstream wire and cable enterprises was not strong, leading to a decline in the operating enthusiasm of secondary copper rod plants. SMM expects that the operating rate of secondary copper rod plants will struggle to achieve sustained growth, with an estimated operating rate of 23.46% in October, and the activity in the secondary copper market is likely to continue to decline.
