Substantial Price Spread but "Prices Without Market" - Pre-Holiday Stockpiling Nearly Halted [SMM Copper Scrap Weekly Review]

SMM, September 30:

       This week (the final trading days after the Mid-Autumn Festival holiday and before the National Day holiday), the copper scrap market headed into the long holiday amid a "three-high" environment of high copper prices, high spot premiums, and a wide price spread between futures contracts. The tax-inclusive price difference between copper cathode and copper scrap held at a high range of 3,926-4,526 yuan/mt. On paper, the substitution economics of copper scrap over copper cathode remained significant, but trading volume did not expand throughout the week despite the wide price spread. Instead, the market exhibited typical pre-holiday characteristics of "inflated price spreads, sluggish trading, and stalled stockpiling." The core bottleneck was no longer price, but invoices and supply availability. On the supply side, traders received limited arrivals during the Mid-Autumn Festival and had limited sellable inventory before the National Day holiday. Secondary copper raw material prices were revised down MoM alongside the pullback in copper prices (down 100 yuan/mt at the start of the week, then down 300 yuan/mt, and flat at the end of the week). However, suppliers' willingness to sell cooled in tandem with weakening prices, with the secondary copper raw material sales sentiment index falling from 2.61 to 2.52. Market supply remained tight. More critically, invoice issues arising from reverse invoicing erupted in the run-up to the holiday, becoming the core obstacle to the circulation of tax-exclusive supply. Domestic supply was difficult to trade at scale due to inconsistent implementation standards across regions, and compliant tax-inclusive secondary copper raw materials that could be invoiced remained in persistent shortage. As a result, the invoice tax rate for tax-inclusive secondary copper raw materials has exceeded 13%.

      On the demand side, the market was caught in a passive situation of "wanting to stockpile but not daring to, wanting to buy but unable to." Many secondary copper rod enterprises did have raw material stocking demand, and the procurement sentiment index once rebounded to a weekly high of 2.03. However, high copper prices combined with spot premiums exceeding 1,000 yuan/mt pushed up actual procurement costs, prompting enterprises to generally wait for further copper price pullbacks before acting. The real bottleneck for stockpiling was invoices—suppliers' inability to resolve invoicing issues severely limited procurement volumes for scrap utilization enterprises. Some secondary copper rod enterprises' pre-holiday raw material inventories could not even sustain production during the Mid-Autumn Festival holiday. Immediately after the holiday ended, some enterprises temporarily arranged a 3-day worker furlough due to insufficient raw materials, and explicitly stated that if raw material procurement remained insufficient in the remaining two trading days, the worker furlough would be extended.

      If invoice issues and copper scrap procurement improve marginally after the holiday, previously backlogged orders may gradually be released. Meanwhile, some enterprises still operating normally may receive phased order transfers due to nearby production halts. However, before policies become clear, most enterprises will not easily expand production scale. The industry's defensive holiday posture of "low utilization, produce based on sales, and purchase as needed" will persist into Q4.