Will the operating rate of copper cathode rod in May fall short of expectations under the dual constraints of weak consumption and a widening price spread between futures contracts?[SMM Analysis]

According to SMM, the operating rate of copper cathode rod enterprises in April was 73.85%, up 4.2 percentage points MoM and 2.41 percentage points higher than the expected value. The operating rate of copper cathode rod enterprises increased by 4.89 percentage points YoY in April. Among them, the operating rate of large enterprises was 83.67%, that of medium-sized enterprises was 59.28%, and that of small enterprises was 56.61%.

The operating rate of the copper cathode rod industry reached 73.85% in April, up 4.89 percentage points YoY (the operating rate was 68.96% in April last year).

According to SMM data, the average price of SMM #1 copper cathode in April was 76,750.71 yuan/mt, down 2,925 yuan/mt MoM from March. The average price of SMM #1 copper cathode once fell to 72,330 yuan/mt during the month. According to SMM data, the average price spread between secondary copper rod in Jiangxi and power-use copper rod in east China was 780 yuan/mt in April, narrowing by 700 yuan/mt MoM from the previous month. The substitution effect of secondary copper rod production also significantly weakened. With the sharp decline in copper prices, a large number of orders were released in a concentrated manner. Most copper rod enterprises could schedule production until the end of April based on their low-priced orders on hand. Supported by a large number of orders on hand, the operating rate of copper cathode rod production increased both MoM and YoY in April.

The raw material inventory/output ratio of copper cathode rod enterprises was 7.27% in April. The finished product inventory/output ratio of copper cathode rod enterprises was 9.69% in April.

During the statistical period, as the Labour Day holiday came to an end, the inventory built up by copper cathode rod enterprises was gradually depleted. Meanwhile, these enterprises are currently facing high copper prices and a wide price spread between futures contracts. To reduce the risk associated with holding inventory, most copper cathode rod enterprises have proactively managed their inventory levels. As a result, the raw material inventory of copper cathode rod enterprises decreased by 1.2 percentage points MoM in April, and the finished product inventory/output ratio of copper cathode rod enterprises decreased by 3.32 percentage points MoM in April.

The operating rate of copper cathode rod producers is expected to be 71.01% in May.

Following a surge in orders in April, most copper cathode rod enterprises had fully processed their low-priced orders by the end of the month. As copper prices gradually shifted their center upwards from mid-April, new orders for copper cathode rod enterprises also gradually weakened. By the time of the Labour Day holiday, downstream enterprises had relatively low stocking demand ahead of the holiday. Most copper cathode rod enterprises took a break and halted production during the Labour Day holiday, dragging down their operating rates. Additionally, after the Labour Day holiday, due to copper prices continuing to fluctuate at highs, new orders for copper cathode rod enterprises remained weak, and the pace of post-holiday shipments was not optimistic. Moreover, constrained by high price spreads between futures contracts, most enterprises chose to reduce their inventory before delivery. If the monthly price spread of copper continues to rise, the operating rates of copper cathode rod enterprises are expected to decline. Therefore, constrained by both weakening consumption and widening price spreads between futures contracts, the operating rates of copper cathode rod enterprises are expected to decline MoM to 71.01% in May, down 2.83 percentage points MoM and up 8.17 percentage points YoY. However, it should be noted that there is a possibility that the operating rates may fall short of expectations.