Policy Shock: Secondary Copper Rod Plants Suspend Production and Adopt Wait-and-See Approach

The operating rate of secondary copper rod was 28.33% in August, higher than the expected 27.43%, down 2.57% MoM but up 3.62% YoY. The core challenge facing the secondary copper rod market in August stemmed from policy expectation uncertainties. Rumors regarding the crackdown on irregular tax incentives and investment attraction policies led many enterprises, particularly those in Jiangxi, to adopt a wait-and-see approach by suspending production since August. Although some plants cautiously resumed production in September after completing orders on hand or procuring imported raw materials with invoices, the overall industry sentiment remained cautious. Before full policy clarity emerges, most enterprises are reluctant to significantly increase operating loads.

Additionally, the structural tightness in raw material supply persists. Copper scrap suppliers show stronger willingness to sell when copper prices rise, but tend to hold back cargoes once prices pull back, leaving secondary copper rod plants facing the dilemma of "difficulty in purchasing even at higher prices." The persistently narrow price spread between raw materials and finished products continues to squeeze their already thin profit margins.

Price-wise, as copper prices climbed, the average monthly discount of Jiangxi copper rod against futures narrowed to 180 yuan/mt, down 200 yuan/mt MoM. Due to production cuts and shutdowns at many secondary copper rod plants in Jiangxi, secondary copper rod supply decreased, driving steady increases in selling prices and marginal improvements in gross profit. The average monthly gross profit stood at -296 yuan/mt, narrowing by 114 yuan/mt MoM. Although production in Jiangxi declined, SMM learned that plants in surrounding cities maintained normal operations as no policy changes were announced, partially offsetting the reduced capacity in Jiangxi.

Demand side, while the off-season ended in August, many enterprises reported that new orders expected in the traditional peak consumption season starting September should have materialized in late August. However, order intake still showed mediocre performance, keeping downstream demand for secondary copper rod predominantly rigid.