Copper Inventory Drawdown in China Beats Expectations, But Demand Stays Weak

As of Thursday, August 27, copper inventories in major regions nationwide fell to 109,500 mt, down 24,900 mt WoW from the previous Thursday and down 17,600 mt YoY, leaving absolute inventory at a low level. During the week, inventory destocking continued, driven mainly by the combined effect of supply contraction and month-end restocking.

1. Regional Divergence: Driven by Arrival Pace, Not a Broad Demand Recovery

By region — in Shanghai, domestic supply arrivals picked up, so inventory built up slightly; the new arrivals weren't fully absorbed downstream, showing demand's ability to take supply is limited. In Jiangsu, domestic arrivals narrowed and supply got tight, and with consumption showing some resilience on top of that, inventory kept drawing down — but the main driver is shrinking arrivals, not a demand surge. In Guangdong, consumption had been persistently weak, but as copper prices pulled back, buying costs fell and wait-and-see sentiment eased, so demand is gradually recovering, withdrawals are up, and inventory keeps falling.

2. Demand Watch: The "Better-Than-Expected" Operating Rate Isn't All It Seems

As the biggest chunk of downstream demand, major domestic refined copper rod makers' operating rate came in at 62.44% last week, up 1.24 percentage points from the week before — the second straight weekly rise. But this pickup isn't a natural, demand-driven jump: copper prices kept drifting higher this week, so new orders clearly slowed, and plants are mostly just running through the orders they took last week when prices pulled back; on top of that, some mills outside the sample shut down and their orders shifted into the sample, so the weekly rate got pushed up passively. Looking at end-use sectors, cables and magnet wire are being held back by high copper prices, keeping overall demand soft. Inventory tells the same story — with month-end approaching and spot material thin, mills restocked actively, lifting raw material inventory by 2.68 points week-on-week, but downstream pickup is steady with no wave of bulk restocking, and finished goods inventory only ticked up 0.16 points, which means real buying is still cautious.

3. Outlook: Supply and Demand Tighten at the Margin — Destocking Continues, but at a Slower Pace

On the supply side, near-term domestic refined copper arrivals are shrinking while imports hold steady, so overall supply is getting a bit tighter at the margin. On the demand side, backlogged orders got released in a rush at month-end and restocking appetite picked up — but it's mostly essential-need refills, spot available material is broadly stable, and trading sentiment is warming. All in all, SMM expects national copper social inventory to keep edging lower next week. That said, the demand recovery still leans heavily on the month-end effect and essential refills — the fact that end users aren't buying much at high copper prices hasn't fundamentally changed, and whether destocking can last depends on whether a price pullback can unlock real orders. Next week, the rod mills in the sample that were down for maintenance or cutbacks will resume normal production, so SMM expects the rod operating rate to rise 0.95 points week-on-week. The uptick does lend some support to cathode copper consumption, but with downstream pickup steady and end demand limited, how much it really helps remains to be seen — and if rod finished-goods inventory builds up along the way, that would in turn hold back future buying.