In July 2026, the copper scrap market operated amid a backdrop where the most-traded SHFE copper contract shot up from 102,000 yuan/mt to above 106,000 yuan/mt, with a monthly gain exceeding 3,000 yuan/mt. Driven by the combined effect of copper cathode’s sustained one-way rise and copper scrap’s resistance to declines and holding prices firm, the price difference between primary metal and scrap widened from around 2,000 yuan/mt at the start of the month to over 4,000 yuan/mt at month-end, briefly reaching as high as 4,800 yuan/mt mid-month. The inherent resistance of copper scrap to price declines was the defining supply-side characteristic throughout the month. Under the dual constraints of ongoing compliance on reversed invoicing and a deepening high-temperature off-season, the market displayed a starkly polarized landscape: structurally tight supply, vigorous arbitrage-driven procurement downstream, and even weaker physical consumption in the off-season. Although the rise in copper prices and the widening of the price difference stimulated downstream purchase willingness, procurement was dominated by the hedging logic of “buying raw materials and shorting futures,” resulting in extremely limited restocking volumes for actual production.
Supply side, the copper scrap market extended the structurally tight pattern seen since 2026, with the underlying constraint remaining the reverse invoicing policy. From July 1, the new "three-stream-in-one reverse invoicing" policy was officially enforced, but regulatory scrutiny intensified in Jiangxi, Hubei, and other regions. In Jiangxi, production came to a halt after quotas were exhausted; in Hubei, retroactive investigations under the reverse invoicing policy sparked enterprise concerns; and in Shuyang, Jiangsu, invoicing quotas remained restricted, keeping compliant and deductible copper scrap that was available in the market persistently tight. After Document No. 770 cleared local illegal tax rebates at the end of 2025, small and mid-sized copper scrap traders reliant on subsidies continued to exit the market, significantly shrinking overall available supply compared to the same period in previous years. Mainstream copper scrap invoice tax rates exceeded 11%, rising to 12% in certain regions, further driving up enterprises' raw material procurement costs.
On the import side, China's cumulative copper scrap imports from January to June stood at 1.2415 million mt in physical content, up 8.39% YoY. Although smelting capacity expansions for secondary copper in the US and Europe siphoned off high-grade supply, domestic scrap utilization enterprises, influenced by policy factors, were willing to pay higher premiums to secure overseas secondary copper raw materials. Even with elevated discount rates on overseas secondary copper raw materials, imports of such materials showed little sign of a near-term pullback. However, downstream orders were mediocre due to the traditional consumption off-season, placing some pressure on further import growth. Additionally, June was a period of concentrated maintenance for some smelters, leading to divergent demand for different grades of secondary copper raw materials. Owing to bare bright copper's strong substitution for copper cathode, its procurement demand remained relatively stable, with transaction coefficients staying high. In contrast, No.1 copper and No.2 copper were largely affected by smelter maintenance and a phased slowdown in raw material demand, resulting in slight declines in their transaction coefficients. Overall copper prices consolidated with an upward bias in July, but trade remained sluggish amid relatively weak downstream consumption. The discount of bare bright copper to copper cathode widened from about 500 yuan/mt at the start of the month to roughly 900 yuan/mt. Despite subdued end-use demand, prices of tax-inclusive secondary copper raw materials stayed at relatively high levels against a backdrop of persistently tight domestic invoice supply and limited availability of duty-paid material. From the demand side, the price difference between primary metal and scrap widened to over 3,800 yuan/mt, making the economic benefits of copper scrap evident, and the purchase willingness of secondary copper rod enterprises was notably robust. However, the robust purchase willingness was mainly directed at futures arbitrage rather than physical restocking: during the period when copper prices shot up, secondary copper rod enterprises generally adopted the hedging strategy of "buying copper scrap while shorting futures" to purchase copper scrap. However, these arbitrage-driven purchases did not fully translate into actual production restocking, and the operating rate of secondary copper rod enterprises only edged up from 17.38% at the beginning of the month to 18.29% at month-end.
On the smelting side, anode plate producers using copper scrap, constrained by the "reverse invoicing" policy, were forced to purchase large quantities of imported copper scrap to ensure delivery of long-term contracts. However, the growth in imported copper scrap was limited and could not fully meet the demand from downstream processing and smelting, causing some anode plate producers to shut down part of their capacity, and the delivery volume under long-term contracts is expected to decline.
The implementation standards of the "reverse invoicing" policy vary by region. Some secondary copper rod enterprises faced insufficient input invoices due to "reverse invoicing" issues, unable to issue sufficient output invoices to downstream end-users, resulting in some payments being temporarily withheld by 13%-15%. Meanwhile, downstream clients of anode plate producers using copper scrap are mostly state-owned enterprises, which must ensure the safety and compliance of output invoices. The safest approach is to purchase imported copper scrap that inherently includes 13% VAT, thereby avoiding the risk of input invoices being reversed due to non-compliant "reverse invoicing."
Against the backdrop of the "reverse invoicing" policy and the "rectification of the invoicing economy," the invoice costs for tax-inclusive copper scrap in the market have risen sharply, causing the tax-inclusive price difference between primary metal and scrap to deviate from actual market conditions.
Looking ahead to August, if the price difference between primary metal and scrap can stabilize above 4,000 yuan/mt, the implementation criteria for reverse invoicing are further clarified, and credit limits in some regions are marginally relaxed, it may drive the release of some rigid demand. Otherwise, under the combination of low copper cathode inventory, high premiums, and downstream reluctance to buy at high prices, the copper scrap market will continue to maintain a weak equilibrium pattern of "suppliers selling and rod enterprises buying for hedging when copper prices rise, and both sides waiting and seeing when copper prices are high." The genuine recovery of physical consumption still awaits a copper price correction or a substantial improvement in end-user orders.
