[SMM Analysis]Industry Dilemma Under High Copper Prices: Dual Decline in Operating Rates of Copper Cathode Rod and Secondary Copper Rod, Inventory Accumulation

As copper prices continued to rise, with consumption being suppressed by the absolute price and the operating rate of secondary copper rod production passively reduced during a period of policy watch, the discount of secondary copper rod against copper futures declined throughout March. The price difference between copper cathode rod and secondary copper rod has reached its highest level since September 2024. Against this backdrop, how is the current market for refined and secondary copper rods performing? Has the supply of copper anodes increased? A detailed analysis follows:

As copper prices continued to rise, with consumption being suppressed by absolute prices and the operating rate of secondary copper rod plants passively reduced during a period of policy observation, the discount of secondary copper rod against copper futures declined throughout March. The price difference between copper cathode rod and secondary copper rod has reached its highest level since September 2024. In Jiangxi, the discount of secondary copper rod against the futures market is shown in the figure below. First, looking at the copper scrap market, the current performance of secondary copper rod and copper anode plants is as follows:

Amid the continuous rise in copper prices, the supply of secondary copper increased slightly compared to before. Although most suppliers held back cargoes due to their bullish outlook, leading to tight procurement of secondary copper raw materials, the high absolute price levels continued to suppress end-use consumption. The overall cargo pick-up from downstream customers of secondary copper rod plants was also weak, resulting in a decline in the demand for secondary copper raw materials among secondary copper rod enterprises. At the same time, with the initial finalisation of the reverse invoicing policy, the market's wait-and-see sentiment also suppressed the operating rates of secondary copper rod plants. According to SMM statistics, the weekly operating rate of secondary copper rod plants has declined for three consecutive weeks. Against the backdrop of weakening demand and sluggish consumption, the discounts of secondary copper rod against copper futures have been continuously falling, widening the price spread between copper anode RCs and the discount of secondary copper rod against copper futures, making copper anode RCs more advantageous (as shown in the figure below). According to SMM, since early March, many secondary copper rod enterprises have started producing copper anodes.

From the performance of refined copper rod, under the pressure of high absolute prices and a continuously widening price difference between copper cathode rod and secondary copper rod, orders on hand and new orders for refined copper rod enterprises have decreased to varying degrees. Many refined copper rod enterprises reported that some downstream consumption has already started to shift significantly to secondary copper rod. However, according to SMM, finished product inventories at secondary copper rod enterprises across regions remain high. Therefore, the current market focus is still on inventory reduction. As shown in the figure below, according to SMM data, the finished product inventories of refined copper rod enterprises have risen significantly again. At the same time, operating rates may face consecutive declines. It is also noteworthy that currently, traders of refined copper rod have once again shown a trend of low-price competition, which may further increase the sales pressure on refined copper rod enterprises.

In summary, as copper prices continued to rise, although the widening price difference between refined and secondary copper rods gave more economic advantages to secondary copper rods, the consumption shift caused by this price spread was limited. This resulted in high finished product inventories for both types of copper rod enterprises, leading to a dual decline in operating rates. The overall consumption in the copper rod market was suppressed by high copper prices, with the pressure to sell off existing inventory significantly increasing. If copper prices were to rise further, the suppression on future consumption might intensify. Given that secondary copper rod production is in a policy observation period and downstream consumption for refined copper rod enterprises remains weak, when the operating rates of both types of copper rod enterprises could rebound still depends on the downstream enterprises' acceptance of copper prices.