Rebounding copper prices drive downstream restocking sentiment, but secondary copper rod enterprises, facing widening losses, are reluctant to increase production significantly [SMM Weekly Review of Secondary Copper Rod]

SMM News on June 13:

       According to SMM survey data, the operating rate of secondary copper rod this week was 29.03%, down 3.05 percentage points WoW and 18.42 percentage points YoY. Meanwhile, the average price difference between copper cathode rod and secondary copper rod was 1,328 yuan/mt this week, widening by 243 yuan/mt MoM. Additionally, the average discount of secondary copper rod against copper futures in Jiangxi was 734 yuan/mt, widening by 306 yuan/mt MoM. Based on SMM's calculation of the gross profit model for secondary copper rod sales, the gross profit for the week was -489 yuan/mt, widening by 260 yuan/mt MoM.

      The price difference between copper cathode and copper scrap continued to widen by 151 yuan/mt to 1,629 yuan/mt, stimulating an improvement in demand for secondary copper rod, though the industry remains in a loss-making position. The decline in the operating rate of secondary copper rod this week was mainly due to the continued rise in the price of secondary copper raw materials for enterprises. Although downstream ordering sentiment was positive, quoted prices were generally low, and secondary copper rod enterprises were unable to accept expanding losses to take on new orders, resulting in a slight drop back in the operating rate. Amid fluctuations in copper prices, strategies among suppliers of secondary copper raw materials diverged significantly: on June 10, they sold at highs to lock in expected profits amid the China-US trade negotiations, while on the 12th, they refused to budge on prices, preventing the cost of secondary copper rod from falling in line with copper prices. Downstream attempts to drive down prices by 100-150 yuan/mt were met with resistance from enterprises, leading to a stalemate in daily transactions. On the policy front, the "reverse invoicing" system is accelerating the replacement of the 3% VAT invoice model and is expected to become the mainstream channel for raw material procurement in the secondary copper rod industry by 2026, though the tax transition period is driving up financial costs.

      Looking ahead to next week, high raw material prices and the pressure of tax system switching will continue to suppress the room for a rebound in the operating rate of secondary copper rod. If the outcome of the China-US negotiations falls short of expectations, the market may face dual risks of suppliers selling off inventory and finished product price declines.

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