Copper Prices Shot Up on a Short Squeeze, Breaking Above 109,000; Price Difference Between Copper Cathode and Copper Scrap Once Exceeded 5,000 yuan/mt [SMM Copper Scrap Weekly Review]

SMM News on August 28:

       This week, the price difference between copper cathode and copper scrap swung widely within the range of 3,846–5,061 yuan/mt, and shot up to an intrayear high of 5,061 yuan/mt on August 26. Recent SMM visits to major cargo yards in Zhenhai, Ningbo showed that inventories of high-grade bare bright copper were extremely tight, with some yards holding less than one-quarter of their usual inventory levels. Yard A mainly stocked blister copper ingots and No. 2 copper semis, with very limited volumes of bare bright copper wire. Suppliers’ pace of shipments amid wild swings in copper prices showed the typical pattern of “selling on rallies and holding back from selling on dips”: at the beginning of the week, when copper prices were stable, the sales sentiment index fell to 2.73, and both suppliers and rod enterprises showed weak willingness to transact. As the price center of copper prices moved up to 108,120 yuan/mt, the sales sentiment index rose to 2.78, and suppliers’ willingness to sell at fixed prices rebounded. Mid-week, a short squeeze drove copper prices to surge by 1,320 yuan/mt to 109,440 yuan/mt, pushing the sales sentiment index to a monthly high of 2.84. However, suppliers remained bullish on further rises in copper prices and were not strongly willing to sell; tax-included copper scrap prices stayed relatively firm, and deductions for imported copper scrap prices likewise remained unchanged. Toward the end of the week, copper prices pulled back by 470 yuan/mt, and the sales sentiment index edged down to 2.82. Suppliers’ quotations were unchanged from the previous day, and market circulation volumes decreased compared with August 26.

       If the September-October peak season in September starts as scheduled and end-user wire and cable enterprises’ stockpiling demand is materially released, trading activity in the secondary copper rod market is expected to improve. However, if the invoice tax rate continues to stay at the high level of 12% and copper prices remain above 107,000, the secondary copper rod market will likely continue the high-level stalemate of “suppliers holding prices firm and demand staying on the sidelines.” A genuine recovery in physical consumption will require copper prices to pull back to downstream psychological price levels, or a material decline in invoice costs to rebuild a reasonable profit margin for rod enterprises. Otherwise, the “inflated” price difference between copper cathode and copper scrap will persist, and the release of substitution of copper scrap for copper cathode will remain constrained.