Copper cathode production increased more than expected in May, but is expected to continue to decline from June [SMM analysis]

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SMM May 30 News:

    China's copper cathode production in May increased by 12,600 mt MoM, up 1.12%, and rose 12.86% YoY. Cumulative production from January-May increased by 544,800 mt YoY, up 11.09%.

     May's copper cathode production exceeded expectations by 8,400 mt, mainly due to the following reasons: 1) Smelters that underwent maintenance in April resumed production as scheduled, with output exceeding expectations; 2) Production at newly commissioned smelters continued to rise; 3) Imports of copper anode plates continued to increase in May; 4) Inventories of copper concentrates at major domestic ports slightly declined from 835,600 mt at April-end to 795,900 mt at May-end, though still significantly higher than the 575,200 mt recorded in mid-March, indicating no tightness in copper concentrate supply for smelters. 5) Sulphuric acid prices rebounded in May due to reduced supply and increased export demand, a trend expected to persist until late June. Higher sulphuric acid prices effectively offset smelting losses. However, it is noteworthy that production at smelters not using copper concentrates (relying on copper scrap or anode plates) declined due to tight copper scrap supply, as reflected in their lower operating rate (68.9% in May, down 3 percentage points). Additionally, mid-year long-term contract negotiations between mines and smelters have commenced, with the first round offering TC-$15/mt, implying most smelters—whether under long-term contracts or spot orders—will face losses, increasing pressure for future production cuts.

      In summary, the sample operating rate for China's copper cathode industry in May was 88.82%, up 1.02 percentage points MoM. Large smelters recorded an operating rate of 92.73% (up 1.58 percentage points MoM), medium-sized smelters at 84.68% (up 1.92 percentage points MoM), and small smelters at 62.89% (down 8.5 percentage points MoM). Smelters using copper concentrates operated at 93.3% (up 1.8 percentage points MoM), while those not using copper concentrates (relying on copper scrap or anode plates) operated at 68.9% (down 3 percentage points MoM).

      Entering June, only one smelter in our survey has maintenance plans. However, the number of enterprises reporting lower capacity utilisation rates has increased significantly, with nearly 40% of surveyed firms implementing production cuts to varying degrees—double the figure in May. Thus, total production in June is expected to decline MoM.

     Based on production schedules, SMM forecasts China's June copper cathode output to drop by 7,200 mt MoM (down 0.63%), while rising by 126,100 mt YoY (up 12.55%). The cumulative production from January to June is expected to increase by 670,900 mt YoY, with a growth rate of 11.34%. In June, the sample operating rate of the copper cathode industry was 88.26%, down 0.56 percentage points MoM. Among them, the operating rate of large smelters was 91.27%, down 1.46 percentage points MoM; the operating rate of medium-sized smelters was 84.46%, down 0.22 percentage points MoM; and the operating rate of small smelters was 70.65%, up 7.76 percentage points MoM. The operating rate of smelters using copper concentrates was 92.5%, down 0.8 percentage points MoM; the operating rate of smelters not using copper concentrates (copper scrap or copper anode) was 69.6%, up 0.7 percentage points MoM. Finally, we expect production to continue to decline in July, with tight raw material supply being the main reason.