Visit to Ningbo Zhenhai Copper Scrap Yard — High-Grade Copper Scrap Scarce, #2 Copper Semis Predominate

This week, SMM headed to various copper scrap yards in Zhenhai, Ningbo for field visits. Since the implementation of reverse invoicing this year, many scrap utilization enterprises have been unable to carry out reverse invoicing on a large scale, forcing them to increase their procurement volume of imported copper scrap. The visits revealed that inventories at most yards are not ample. With demand for copper scrap outside China rising, yard managers also expressed expectations that future imports of copper scrap will decline.

Yard A: The site mainly stocks blister copper ingots and No. 2 copper semis (mostly copper pipe & tube), with very limited quantities of bare bright copper wire.

Yard B: The site mainly stocks bare bright copper wire nodules. According to the yard manager, this batch of bare bright copper wire nodules has already been sold and awaits cargo pick-up by buyers, leaving only a small volume of copper ingots and No. 1 copper semis available for sale.

Yard C: The site mainly stocks brass and shredded copper, with inventory less than one-fourth of the usual level.

Yard D: The site stocks various types of copper scrap, but inventory is extremely low.

Based on this week’s visits, imported copper scrap inventories are at low levels. As the traditional September-October peak season approaches, yard managers stated that although they have stockpiled in preparation for the peak season, given current domestic policy expectations, the reverse invoicing policy will remain unchanged, and scrap utilization enterprises will continue to have strong demand for imported copper scrap.

To directly reflect the impact of current tax costs on scrap utilization enterprises, SMM conducted a tax calculation assuming a selling price of copper semis of 104,200 yuan/mt. The calculation shows: If procurement is completely tax-exclusive, the total actual tax paid by the enterprise is 9,618 yuan/mt, with an invoice tax rate of 9.23% for business negotiation. If using reverse 1% invoices, the actual tax paid is 9,846 yuan/mt, with the invoice tax rate rising to 9.45%. If using the simplified 3% invoice method, the actual tax paid reaches 10,309 yuan/mt, with an invoice tax rate of 9.89%. If fully compliant procurement using 13% invoices is adopted, the total actual tax paid skyrockets to 12,563 yuan/mt, with the invoice tax rate for business negotiation reaching 12.06% (and even up to 13.62% from a financial perspective). 

According to preliminary calculations by SMM, although fully purchasing imported copper scrap can ensure legal and compliant operation for scrap utilization enterprises, the significant increase in tax costs will narrow the price difference between copper cathode rod and secondary copper rod, overwhelming the economic benefits of secondary copper rod and reducing its market competitiveness. Facing high compliance costs, scrap utilization enterprises can only pass on the pressure by lowering the price of upstream tax-exempt copper scrap.

Looking ahead, against the backdrop of building a "unified" market, although reverse invoicing will regulate the shortage of invoices in the industry, the dividend period for scrap utilization enterprises is fading. Enterprises need to find a balance between stockpiling in peak season and cost suppression, and continuously improve their procurement bargaining power and product competitiveness.