SMM, August 14:
This week (Aug 10-13), the price difference between copper cathode and copper scrap swung wildly in the range of 4,400-5,200 yuan/mt. According to SMM data, the tax-inclusive invoice rate for copper scrap has reached 12%. Supply of domestically produced tax-inclusive copper scrap is scarce, and enterprises scrambling for input invoices drove the invoice tax rate up from 10.5% to 11.5%-12%. Meanwhile, competition in the finished secondary copper rod segment is fierce and prices cannot be raised, so scrap utilization enterprises can only pass pressure upstream by lowering copper scrap purchase prices. This is the main reason for the rapid expansion of the price difference this round—not demand-driven, but caused by tax costs being passed up the industry chain to the upstream copper scrap raw material segment. Suppliers' shipment pace amid copper price fluctuations showed a "rush to cash in" pattern. As delivery of the front-month futures contract neared, the price spread between futures contracts widened to 800 yuan/mt. Scrap utilization enterprises shifted pricing to the September contract. With the forward contract in a clear downtrend, purchase willingness was muted. Supplier offers were unchanged from yesterday, and overall market transactions were moderate.
On the import supplement side, the payable indicator for overseas copper scrap stayed at high levels. Imported copper scrap deductions continued to rise and import costs remained high. Although the US BIS requirement of 100% domestic sales for black mass and tungsten scrap does not directly involve copper scrap, the policy signal has been clearly sent. The trend toward tighter cross-border flows of high-grade copper scrap is basically established. Overseas supply has shown no obvious incremental inflow into China, providing limited relief to the domestic tightness.
Overall, the core tension in the copper scrap market this week has deepened from last week's "restocking-driven market" to "the twin pressures of invoice costs and arbitrage inventory." On the surface, the substitution advantage of copper scrap is unprecedented, but after the tax-inclusive invoice rate rose to 12%, the actual cost ultimately borne by scrap utilization enterprises did not decline in tandem, and the price spread dividend was swallowed by tax costs. At the same time, inventories accumulated by rod producers from earlier arbitrage-linked purchases and the capital tied up in them have caused them to lose the motivation to keep chasing high prices and buying at elevated levels. The market has fallen into a weak equilibrium of "suppliers eager to sell, rod producers waiting for lower prices." If the copper scrap market continues the high-level stalemate of "supply willing to sell, demand not buying," a genuine recovery in physical consumption will require a pullback in copper prices to release end-user orders, or a substantial decline in invoice costs to rebuild a reasonable profit margin for rod producers. Otherwise, the "artificially high" price difference between copper cathode and copper scrap will persist, and the release of copper scrap substitution for copper cathode will remain constrained.
![The price spread between futures contracts was wide, and spot trades were sluggish near delivery [SMM South China Copper Spot]](https://imgqn.smm.cn/usercenter/aMTzL20251217171710.jpg)
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