Copper Scrap Market Sees Supply Tightness and High Premiums Amid Regulatory Challenges

During the week of July 20-23, the copper scrap market operated under a threefold backdrop: low copper cathode inventory and high premiums, continued compliance restrictions from reverse invoicing, and a deepening high-temperature off-season. The SHFE copper closing price at 11:30 surged from 104,180 yuan/mt to 106,340 yuan/mt, then pulled back slightly to 106,170 yuan/mt by the end of the week, for a weekly gain exceeding 2,000 yuan/mt. Driven by the one-sided rise in copper cathode and copper scrap's resilience to decline and firm pricing, the price difference between primary metal and scrap widened from 3,218 yuan/mt to 4,545 yuan/mt, briefly touching 4,800 yuan/mt during the week. The resilience of copper scrap itself was the defining characteristic on the supply side this week.

On the supply side, the structural tightness seen since 2026 persisted, with the fundamental constraint remaining the reverse-invoicing policy. Inspections tightened in Jiangxi and Hubei, among other regions. After quotas were exhausted, production in Jiangxi came to a standstill; in Hubei, retrospective audits on reverse invoicing stoked concerns among enterprises; and in places like Shuyang, Jiangsu, invoice quotas remained restricted. Available compliant and deductible copper scrap stayed tight. After Document No. 770 at the end of 2025 eliminated illegal local tax rebates, small and medium-sized copper scrap traders reliant on subsidies continued to exit the market. Overall available supply contracted significantly compared with the same period in previous years. The mainstream copper scrap invoice tax rate had already exceeded 10%, and in some areas it climbed to 12%, further driving up enterprises' raw material procurement costs.

Supported by this, suppliers' shipment pace exactly followed copper price fluctuations. At the beginning of the week, as copper prices rose, the sales sentiment index increased from 2.47 to 2.53, willingness to sell gradually improved, and circulating material in the market increased somewhat. Mid-week, after copper prices surged above 106,000 yuan/mt, the sales sentiment index jumped to a monthly high of 2.66, and suppliers actively priced and shipped, with some even taking on short positions in the market; circulating supply visibly increased. However, affected by weak off-season orders in the downstream scrap-using sector and low acceptance of high-priced material, these shipments did not translate into actual production restocking. Most material was purchased by secondary copper rod enterprises using a hedging strategy of "buying raw material and selling futures." At the end of the week, copper prices consolidated at highs. Suppliers continued to sell at high prices, but purchase willingness on the procurement side pulled back, and market trading turned quiet.

Regional divergence persisted. In south China, due to higher compliance costs and slower capital turnover, the purchase price for bare bright copper was 400-600 yuan/mt lower than in the north. The unusual structure of different prices for the same material continued. Traders maintained a low-inventory strategy of fast turnover, and the issue of payment collection periods stretching beyond two weeks remained unresolved, further limiting the release of supply elasticity. Outside China, the copper scrap market remained weak on both supply and demand sides. With LME copper moving sideways in a narrow range, the discount rate for overseas bare bright copper held steady at 98.5%-99%. The import copper scrap discount pulled back slightly but without notable growth, and overseas supply supplement was limited. Demand side, there was a stark divergence, with strong hedging and weak physical demand. Although secondary copper rod enterprises were theoretically profitable because the price difference between copper cathode rod and secondary copper rod widened to above 1,800 yuan/mt, SMM data showed that this week the secondary copper rod operating rate edged up only 0.91 ppts WoW to 18.29%, the average price difference between copper cathode rod and secondary copper rod widened 328 yuan/mt to 1,580 yuan/mt, and the average gross profit per ton rose by 568 yuan to 1,218 yuan/mt. However, new orders were sparse, and the enterprises held relatively ample raw material inventories from earlier (weekly raw material inventories rose by 730 mt WoW to 2,730 mt), so procurement was mainly for arbitrage and hedging, with very little actual restocking for production. Mid-week, when copper prices surged, secondary copper rod orders expanded notably WoW, but this was triggered by the arbitrage window rather than driven by end-user orders. By the end of the week, after copper prices consolidated at highs, rod enterprises’ purchase willingness fell back again, hampered by fear of high prices and sufficient raw material inventories. Scrap-to-anode plate enterprises, constrained by reverse invoicing quotas, also operated at low rates, and their copper scrap purchasing was primarily rigid demand-driven bargain hunting. Downstream wire and cable, and enamelled wire sectors were under dual pressure from high copper cathode premiums and high absolute copper prices, with growing fear of high prices. New orders turned even weaker in the off-season. State Grid infrastructure orders provided only slight bottom support, growth in retail and real estate-associated cables and wires was insufficient, the home appliance sector saw refrigerator and air conditioner production schedules contract, two-wheeler orders fell WoW, and enamelled wire enterprises’ days of finished product inventories rose to 9.34 days, providing an extremely limited boost to copper scrap consumption.

Overall, this week the core tension in the copper scrap market shifted from “copper price levels” to “who captures the spread dividends.” The primary-scrap spread as wide as 4,500 yuan/mt driven by surging copper prices was essentially captured by arbitrage funds. Secondary copper rod enterprises’ practice of buying raw materials and shorting futures supported copper scrap circulation but did not transmit to physical consumption. The combination of compliance invoice constraints and the high-temperature off-season made scrap utilization enterprises extremely reluctant to accept copper prices above 104,000 yuan/mt and high premiums. Even though suppliers actively sold, the demand side responded only with hedging and pulse rigid demand. Going forward, if the primary-scrap spread stabilizes above 1,500 yuan/mt, reverse invoicing implementation rules become clearer, and quota restrictions in some regions are marginally relaxed, it could spur some rigid demand release. Otherwise, under the combination of low copper cathode inventories, high premiums, and downstream fear of high prices, the copper scrap market will persist in a weak balance pattern where “when copper prices rise, suppliers sell and rod enterprises buy for hedging; when prices stay high, both sides wait and see.” A true recovery in physical consumption will still require copper price corrections or a substantial improvement in end-user orders.