Secondary Copper Raw Material Supply Insufficient, Price Difference Between Primary Metal and Scrap Narrows [SMM Analysis]

SMM, February 23:

       The average price difference between primary metal and scrap (including tax) this week was 1,727 yuan/mt, narrowing by 468 yuan/mt WoW from 2,195 yuan/mt. This week, copper prices pulled back from highs and quickly rebounded, while Guangdong bare bright copper prices remained stable at 70,800-71,000 yuan/mt. The reason suppliers of secondary copper raw material stood firm on quotes was that most secondary copper rod enterprises nationwide fully resumed production this week, leading to a rapid increase in raw material procurement demand. On the supply side of secondary copper raw material, the pullback in copper prices suppressed suppliers' willingness to sell. Additionally, secondary copper raw material yards indicated that they had taken many short positions when copper prices were high. This week, as soon as the secondary copper raw materials arrived, they were immediately dispatched, leaving little inventory. Therefore, with rapidly increasing demand for secondary copper raw materials but insufficient supply, suppliers stood firm on quotes. In terms of imports, it was previously mentioned that Ningbo import traders had suspended imports of secondary copper raw materials from the US due to concerns about the impact of the US-China trade war on tariffs. However, this week, customs clearance companies revealed that after Trump took office, the 10% tariff increase on China was postponed to March or April, prompting some traders to resume purchasing secondary copper raw materials from the US.

       Looking ahead to next week, with the slow recovery of domestic secondary copper raw material supply and the gradual resumption of overseas procurement, the supplementation of imported secondary copper raw materials is expected to effectively alleviate the domestic supply shortage of secondary copper raw materials.

       This week, the nationwide social inventory coefficient of copper scrap continued to decline. Secondary copper raw material yards were unable to build up inventory mainly because many short positions were taken when copper prices were at a high of 78,500 yuan/mt. The copper scrap delivered this week was directly dispatched by truck, with almost no copper scrap entering inventory. Disassembly enterprises indicated that the impact of "reverse invoicing" is currently relatively small. However, due to the impact of winter weather, workers' disassembly efficiency is low, resulting in limited output of secondary copper raw materials.

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