Secondary Copper Rod Sales Continue to Incur Losses, Operating Rate Decline Exceeds Expectations [SMM Analysis]

SMM News on June 7:

         In May, the operating rate of secondary copper rod production was 29.92%, lower than the expected 32.74%, down 3.97% MoM and 12.13% YoY. Although Sino-US trade tensions eased somewhat in May, China still imposed a 10% tariff on all US imports. As a result, US secondary copper raw materials remained difficult to enter the Chinese market, and expectations of a decline in overseas supply persisted. Affected by the narrow fluctuating trend of copper prices, the domestic supply of secondary copper raw materials remained tight. The low supply of secondary copper raw materials led to relatively high prices, resulting in an average sales loss of 245 yuan/mt for secondary copper rod enterprises in May. Continuous sales losses forced secondary copper rod enterprises to reduce production days to maintain normal procurement of secondary copper raw materials.

        In May, the raw material inventory of sampled enterprises was 18,200 mt, up 2,200 mt MoM. In addition, the traditional off-season in May this year was colder than expected. With limited new orders, secondary copper rod enterprises still faced increased finished product inventories despite production cuts. Sample data for May showed finished product inventories at 18,200 mt, up 3,300 mt MoM. The average price difference between copper cathode rod and secondary copper rod in May was 1,156 yuan/mt, which was at a neutral level. For terminal wire and cable enterprises, the economic benefits of secondary copper rod were not strong, and their demand for secondary copper rod was extremely limited.

       Regarding the implementation progress of "reverse invoicing," many secondary copper rod enterprises reported that the tax authorities had gradually urged enterprises to improve the procedures and processes for "reverse invoicing." Simplified VAT invoices for resource recycling companies were gradually being phased out of the market. However, most secondary copper rod enterprises were still in the process of familiarizing themselves with the "reverse invoicing" procedures. It is expected that by the end of 2025, input invoices for secondary copper rod enterprises nationwide will mainly be "reverse invoices," supplemented by naturally invoiced secondary copper raw materials.

       Looking ahead to next month, most orders on hand for secondary copper rod enterprises in May were postponed for production, in the hope that if copper prices rise, it could reduce the sales losses of secondary copper rod enterprises. However, copper prices are currently maintaining a fluctuating trend, and the market is still waiting to see if copper prices can break out of the fluctuating range. With June orders approaching the delivery period, regardless of the copper price trend, secondary copper rod enterprises will resume normal production, and the operating rate of secondary copper rod production may increase slightly.

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