The Supply-Demand Deadlock and Structural Dilemma under Sharp Price Fluctuations

This week, the secondary copper market continued to face the dilemma of "price-volume divergence" amid wild swings in copper prices. The most-traded SHFE copper contract experienced significant volatility during the week, ultimately holding above the 100,000-yuan mark and posting a gain of 310 yuan/mt, but it briefly fell below key levels, reflecting extreme instability in market sentiment. The price of bare bright copper in Guangdong was quoted at 89,500 yuan/mt, edging down 100 yuan/mt on a weekly basis, showing relative resilience. However, superficial price fluctuations masked a deeper structural imbalance in supply and demand: to maintain their commercial reputation, secondary copper rod enterprises were forced to buy the dip in raw materials to fulfill historical orders when copper prices pulled back—a passive, involuntary restocking behavior rather than proactive stockpiling based on optimistic demand expectations. The raw material market exhibited structural tightness, with suppliers holding back sales at high prices, while the circulation of compliant, tax-included materials continued to be constrained by stricter compliance checks on "reverse invoicing," leading to a situation where "raw materials are unavailable." At the same time, end-user orders were exceptionally scarce, with some downstream enterprises indicating they might begin holidays as early as the end of January, likely negating the traditional pre-Chinese New Year stockpiling demand. The pressure of "finished products being unsellable" grew daily. This squeeze from both supply and demand sides plunged secondary copper rod enterprises into operational difficulties, with market activity freezing up.

Data-wise, the operating rate for secondary copper rod this week was 13.52%, up 0.53 percentage points WoW but down sharply by 9.01 percentage points YoY, remaining at a historically low level. The average price difference between copper cathode rod and secondary copper rod narrowed by 361 yuan/mt WoW to 2,423 yuan/mt. In Jiangxi, the average discount of secondary copper rod against copper futures narrowed significantly by 435 yuan/mt WoW to 1,958 yuan/mt. Although the SMM model calculated a weekly average gross profit of 1,877 yuan/mt, theoretical profits failed to translate into actual transactions, as market participants widely opted to "stay on the sidelines." Even when the price difference between primary metal and scrap briefly widened to historical highs, actual transactions were nearly frozen. Enterprises suspended quotations due to an inability to predict wildly fluctuating raw material costs, bringing the market pricing mechanism to a near standstill. Overseas markets are also under pressure from high volatility. Copper prices remain high with significant fluctuations, leading to a noticeable decline in copper scrap procurement by downstream enterprises globally and subdued trading activity. Frequent price fluctuations make it difficult for buyers and sellers to establish a consistent pricing benchmark, hindering transaction progress. Scrap yards in Europe and the United States report high inventory levels, with suppliers largely adopting a wait-and-see approach. In Asian markets such as Japan, both domestic and foreign trade volumes are significantly suppressed. Notably, in markets like South Korea, reduced foreign trade has led to tighter supply of high-grade copper scrap, resulting in suppliers holding prices firm, which further exacerbates the difficulty of raw material sourcing.

Policy pressures persist. Relevant authorities across China are strengthening inspections on the compliance of "reverse invoicing" practices among enterprises. To mitigate risks, many companies have shifted to prioritizing the procurement of taxed copper scrap after the New Year’s Day holiday, further intensifying the shortage of compliant raw materials in the market. This has led to insufficient spot cargo inventory for enterprises, with a limited number of companies able to provide daily quotations. Looking ahead to next week, breaking the market deadlock hinges on two key signals: first, whether copper prices can stop falling and stabilize, entering a relatively steady phase to rebuild the fractured pricing and procurement mechanisms; second, whether there will be a substantial recovery in end-use demand. However, against the backdrop of fluctuating macro expectations, unclear policy directions, and the approaching Chinese New Year, the market is unlikely to see significant improvement in the short term. If copper prices stabilize, enterprises may increase procurement to fulfill orders, potentially tightening raw material supply further. Nevertheless, overall weak demand will constrain the extent of industry recovery, and the operating rate for secondary copper rod is expected to remain low at around 12.46% next week.