Summary of Field Trip to Secondary Copper Rod Enterprises in Hubei Province — Continuous Losses in Sales Coupled with the Transitional Period of Policy Implementation, Enterprises Struggling to Operate [SMM Analysis]

SMM June 16 Report:

         From June 10 to June 13, the SMM secondary copper industry chain analysis team conducted visits and surveys at 10 secondary copper rod enterprises in Xiaogan, Hubei Province, to understand the actual situation of enterprises regarding issues such as the continued losses in secondary copper rod sales and the transition year for "reverse invoicing". Below are the findings from the surveyed enterprises, as well as the views and insights of the relevant enterprise leaders on recent business operations.

       In Q1 2025, as the transition year for the implementation of "reverse invoicing", many enterprises indicated that the policy was still unclear. Before local enterprises had explicitly clarified the specific work requirements for "reverse invoicing" in the procurement of secondary copper raw materials, they chose to suspend production and observe how enterprises in other provinces were implementing and enforcing the policy. As local government departments across the country implemented the specific workflow for "reverse invoicing", enterprises gradually resumed production. However, secondary copper rod enterprises stated that most secondary copper rod yards or suppliers were not yet familiar with the new "reverse invoicing" policy and would not fully cooperate with secondary copper rod enterprises in carrying out "reverse invoicing" work. As a result, many enterprises could only pay relevant taxes in accordance with the "assessed collection" method.

       In Q2 2025, the issue of the US-China trade war affected commodity prices. After a significant retreat, copper prices rebounded only slightly. China's retaliatory tariffs on US goods prevented US secondary copper raw materials from entering China. Domestic supply of secondary copper raw materials was already scarce, and now, with the loss of the US as a major overseas supplier of secondary copper raw materials, domestic prices of secondary copper raw materials remained artificially high for a time. Due to the expected decline in the supply of domestically produced and overseas-imported secondary copper raw materials, many holders and traders of secondary copper raw materials were unwilling to sell their inventories at low prices. There was even a situation where the price of secondary copper raw materials "rose with copper prices but did not fall with them". Secondary copper rod enterprises stated that entering the off-season for consumption in May and June, orders were already insufficient. The artificially high prices of secondary copper raw materials were putting significant pressure on enterprise production. According to SMM's gross profit model for secondary copper rod sales, the sales profits of secondary copper rod enterprises have been negative since May and show a trend of continuous expansion. Enterprises indicated that for every mt of secondary copper rod produced and sold, the factory incurs a loss of at least 200 yuan or even more. If production is halted, expenses such as worker wages and fixed costs would exceed the losses caused by producing copper rods. Enterprises can only be forced to resume production. However, the sustained high prices of secondary copper raw materials and the difficulty in procurement most of the time have led to intermittent production. Additionally, during the transition period of policy implementation, the enforcement and implementation of relevant policies vary across the country. Enterprises in Xiaogan, Hubei Province, stated that the local government currently leads other provinces in terms of enforcement. Changes in procurement costs have also caused enterprises to lose a certain price advantage. Enterprises hope for clarity in policy implementation as soon as possible and for consistent policy enforcement and enforcement efforts nationwide to avoid an unequal market competition environment caused by inconsistent policy implementation across regions.

       In summary, 2025 serves as a transitional year for the "reverse invoicing" policy. The rapid response of enterprises in Hubei province has enabled them to seize the initiative in becoming familiar with the policy and ensuring its normal operation during the full implementation of "reverse invoicing" in 2026. However, the instability in the supply and price of secondary copper raw materials has made the implementation of the policy less smooth. Enterprises are actively seeking the best ways to implement the new policy. According to the SMM survey, pilot enterprises in various provinces across the country have begun to fully implement "reverse invoicing," and the scope of the pilot program will be expanded in the future. The implementation of "reverse invoicing" allows secondary copper rod enterprises to improve their input invoice sources and solve a major problem in the recycling and circulation of renewable resources. The deductibility of input and output invoices also helps enterprises reduce certain tax costs. The implementation of "reverse invoicing" by enterprises can be said to be entirely beneficial without any drawbacks.

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