Price Difference Between Copper Cathode and Copper Scrap Narrows, Secondary Copper Rod Industry Enters Winter [SMM Analysis]

In November, copper prices overall showed a trend of rising first and then falling. On November 5, the average price of SMM #1 copper cathode rose to 77,560 yuan/mt. However, due to multiple factors such as the US election and the US Fed's expected interest rate cut, copper prices came under pressure and fell. By November 14, copper prices had dropped to 73,410 yuan/mt and subsequently fluctuated within the range of 73,000-75,000 yuan/mt.

Supply of Secondary Copper Raw Material is Tight, Price Difference Between Copper Cathode and Copper Scrap Narrows

Due to the recent sustained low copper prices, suppliers of secondary copper raw material are facing severe losses from inventory and generally choose to hold back cargoes. As a result, the supply of secondary copper raw material in the market has become very tight. According to an SMM survey, as of December 3, the price difference between copper cathode and copper scrap in the domestic mainstream market was 863.5 yuan/mt, which is significantly below the reasonable level, greatly reducing the economic advantage of secondary copper raw material.

Year-End Market Cools Down, Secondary Copper Rod Industry Faces Multiple Hits

At the year-end, some end-user enterprises are facing tight cash flow issues, and some wire and cable enterprises, considering the extended payment cycle and the uncertainty of payment risks for new orders, have adopted more prudent purchasing strategies. This has led to a significant decrease in the number of new orders for downstream processing enterprises, with most producers focusing on fulfilling existing orders and mainly replenishing essential supplies. Additionally, the price difference between copper cathode rod and secondary copper rod below the reasonable level in the long term has almost entirely eroded the economic benefits of secondary copper rod, making end-user wire and cable enterprises more inclined to purchase higher-quality copper cathode rod. According to secondary copper rod plants, as downstream purchasing sentiment is very low, sometimes they are unable to sell even one truckload of goods in a day. Recently, the inverted price relationship between secondary copper raw material and finished products has wiped out the economic benefits of secondary copper rod plants, further dampening their operating rate.

Looking ahead to December, the recent macro sentiment is relatively subdued, and copper prices are expected to continue fluctuating downward. Meanwhile, the tight supply situation of secondary copper raw material is unlikely to change, and the price difference between copper cathode and copper scrap is expected to continue fluctuating rangebound. Whether the secondary copper rod industry can emerge from the winter remains to be seen with further market observation.