The industry is facing unprecedented pressure from price competition. Will the YoY operating rate of copper cathode rod continue to decline against the trend? [SMM Analysis]

According to SMM, the operating rate of copper cathode rod enterprises stood at 67.29% in June, down 2.97 percentage points MoM and 2.85 percentage points lower than the expected value. The operating rate of copper cathode rod rose 0.74 percentage points YoY in June. Among them, the operating rate of large enterprises was 79.04%, that of medium-sized enterprises was 49.78%, and that of small enterprises was 52.51%.

In June, the operating rate of the copper cathode rod industry was recorded at 67.29%, up 0.74 percentage points YoY (the operating rate in May last year was 66.55%).

Copper prices remained firm in June, with the center continuously shifting upwards. According to SMM data, the average price difference between secondary copper rod in Jiangxi Province and power-use copper rod in east China was 1,193 yuan/mt in June, expanding slightly by 34 yuan/mt MoM. Copper cathode rod continued to be squeezed by secondary copper rod. Meanwhile, as June marked the mid-year period, a large number of enterprises had the need to fulfill half-year production targets, coupled with competition from traders, the processing fees for copper cathode rod in June were under severe pressure, with unprecedented competitive pressure, and zero processing fees had emerged during the month. In addition to the aforementioned competitive pressures, new orders from downstream also showed weakness. Despite reducing prices to ship goods, copper cathode rod enterprises still struggled to meet previous production targets, ultimately leading to an unexpectedly downward operating rate for copper cathode rod in June.

In June, the raw material inventory/output ratio of copper cathode rod enterprises was 7.43%, while the finished product inventory/output ratio of copper cathode rod enterprises was 11.66% in May.

With the decline in the operating rate and the surge in copper prices, the raw material inventory of copper cathode rod enterprises decreased by 0.43 percentage points MoM in June. Under the semi-annual production targets, the finished product inventories of copper cathode rod enterprises continued to rise, with the finished product inventory/output ratio of copper cathode rod enterprises increasing by 0.76 percentage points MoM in June.

The operating rate of copper cathode rod enterprises is expected to be 66.19% in July.

As copper prices surged past 80,000 yuan/mt in July amid a growing off-season atmosphere, the high copper prices further suppressed downstream enterprises' purchasing appetite, leading to weak new orders. After experiencing sustained increases in finished product inventories and high operating rates in June, multiple copper cathode rod enterprises entered the stage of production cuts, shutdowns, and destocking in July. Moreover, current copper cathode rod enterprises are not optimistic about the market outlook, with similarly few new orders. It is expected that the operating rate of copper cathode rod enterprises will decline again to 66.19% in July, down 1.1 percentage points MoM and 4.33 percentage points YoY. Excluding March, it is projected that the monthly operating rate of copper cathode rod enterprises will turn negative for the first time this year.