[SMM Analysis] Surging copper prices reduced consumption, output of copper rod produced with copper cathode in March unlikely to reach the target

SMM data shows that the national production of copper rod produced with copper cathode in February totaled 503,900 tons, a decrease of 300,600 tons from January, and the operating rate was 39.44%, a month-on-month decrease of 23.53 percentage points. The total output of copper rods in East China was 339,800 tons, and the operating rate was 42.70%; the total output of copper rods in South China was 76,000 tons, and the operating rate was 36.70% (see the SMM database for production and operating rate data for other regions)

Due to the Chinese New Year holiday in February, copper rod plants using copper cathode as raw material suspended production to varying degrees during the holiday, and output fell sharply. At the same time, the recovery of downstream consumption after the holiday was less than expected, causing the growth of output to fall short of the target level of 520,170 tons, which was eventually recorded 503,904 tons. The overall operating rate in February was 39.44%, a year-on-year increase of 4.59 percentage points from the same period last year (January 2023). Under the influence of the year-on-year recovery of the operating rate and the increase in production capacity, output increased by 77,854 tons year-on-year. Although the actual output in February was lower than the expected level of copper rod plants using copper cathode as raw material, there was still a recovery compared with the same period last year.

Compared with January, copper prices shifted upward in February. The average contract price of SHFE front-month copper contract increased by 265.85 yuan/ton from the previous month. Copper prices remained at a high level, but the price spread between copper rod produced with copper cathode and with copper scrap narrowed. SMM data shows that the average monthly price spread between copper rod produced with copper scrap in Jiangxi and electric power rod in east China in January stood at 769 yuan/ton, with the highest in the month being 1145 yuan/ton.

Affected by the surge in copper prices in March, it is expected that it will be difficult to reach the planned output.

After the Lantern Festival, the downstream cable factories gradually resumed work, and the operating rate of copper rod produced with copper cathode gradually recovered in early March. However, according to SMM research, affected by weak end-user consumption, the downstream operating rate was also lower than expected. Driven by news of smelter production cuts, copper prices soared to more than 73,000 yuan/ton. New orders at copper rod plants using copper cathode as raw material dropped sharply, and production was mainly based on long-term orders and downstream demand. The weekly operating rate of copper rod plants using copper cathode as raw material has declined since mid-March. It is expected that the output of copper rod plants using copper cathode as raw material in March will be difficult to reach the expected target of 803,630 tons . The market currently generally expects that a substantial increase in copper rod consumption will occur in the next quarter.

In terms of consumption, the trade-in action plan was promulgated during the Two Sessions, in which the upgrading of automobiles and home appliances is initially estimated to create a trillion-dollar market space. However, the promotion of downstream consumption has not yet appeared. It is expected that if copper prices remain high, consumption will hardly see significant growth in March. It is also worth noting that the previously announced news that 12 indebted provinces and cities have suspended some infrastructure projects may have a certain impact on new orders after the year. SMM will continue to pay attention to the impact.