1.With Tight Supply of Low-Priced Copper Scrap, Copper Scrap Sellers Held Prices Firm

Last week, copper prices narrowly fluctuated upwards, with an increase of 400 yuan/mt, while copper scrap prices remained relatively stable, rising by 100 yuan/mt. Secondary copper rod plants reported that procuring copper scrap remained challenging, leading to intermittent production. Additionally, due to the low operating rate of dismantling plants, copper scrap holders held prices firm. Secondary copper rod plants indicated that there was not much low-priced copper scrap in the market, and although sufficient copper scrap could be procured at a premium, the sales profit could not cover production costs. Therefore, secondary copper rod plants primarily procured low-priced copper scrap.

The price of imported copper scrap has been reported at a discount of 400-500 yuan/mt to the spot copper price for three consecutive weeks. Secondary copper rod plants stated that producing with imported copper scrap resulted in a loss of at least 1,000 yuan/mt, hence they did not consider imported sources. Although some secondary copper rod makers reported domestic tax-inclusive bare bright copper prices at 72,200-72,400 yuan/mt, transactions were minimal.

Last week, the CIF price for #1 secondary copper was quoted at a discount of 18-19 cents/lb to the December COMEX copper contract price, and the CIF price for #2 secondary copper was quoted at a discount of 25-26 cents/lb to the December COMEX copper contract price. COMEX brass (66-66.5% against LME) was priced at $6,000-6,050/mt (with limited transactions). The CIF price for copper granules (Cu 98.5%) was quoted at 95.75-96% against LME, and the CIF price for bare bright copper was quoted at 97.5-98% against LME.

Looking ahead to this week, the tight supply of copper scrap has not yet improved, and it is expected that the market will need to pay a premium to procure sufficient copper scrap for production.

2.Tight Raw Material Supply Limits Recovery of Secondary Copper Rod Operating Rate

According data, the operating rate of secondary copper rod plants last week was 19.57% (surveyed enterprises: 15, capacity: 1.59 million mt/year), up 0.65 percentage points WoW. This week, the average price spread between copper cathode rods and copper scrap rods was 918 yuan/mt, up 279 yuan/mt from last week's 639 yuan/mt. The average discount against futures contract for secondary copper rod prices in Jiangxi was 413 yuan/mt last week, up 288 yuan/mt WoW.

The recovery of the secondary copper rod operating rate last week was limited, mainly due to difficulties in procuring copper scrap and unclear policies. Some enterprises in Jiangxi reported that the subsidies and tax rebates for July have not yet been issued, leading to thoughts of relocating their factories back to their original provinces. However, some enterprises have received promises from local governments that the subsidies and tax rebates will be issued as early as last week. Currently, most secondary copper rod plants remain shut down, awaiting clearer policies. Enterprises that have resumed operations indicated that if raw materials are not effectively replenished by the end of the week, they might consider halting production this week. Overall, the shortage of raw materials has slowed the recovery of secondary copper rod plants, but policy uncertainty is the biggest factor affecting the continuous production of these plants.

Looking ahead to this week, most secondary copper rod plants currently have enough raw materials to operate until the weekend. If sufficient copper scrap cannot be procured by this Monday, the plants will shut down, and the operating rate will decline.

3. Continuous Inventory Reduction in Domestic and Overseas Markets: Why Did Premiums Remained Flat During the Week?

Last week, in macroeconomics, US non-farm payrolls data was significantly revised down. Since 2023, the US Fed's logic of not cutting interest rates has heavily relied on the performance of non-farm payrolls data, raising market concerns about the reliability of US economic data. The CME Fedwatch tool shows a 73.5% probability of a 25 basis point rate cut in September, and according to the monetary policy meeting minutes released last week, the first rate cut in September is almost certain. Mid-week, the Bank of Japan commented on the future path of rate hikes, stating that it would not rush to raise rates amid frequent financial market fluctuations and unclear domestic inflation prospects. In the domestic market, policies supporting "Large-scale equipment upgrades and consumer goods trade-in" initiatives continued to gain momentum, with new manufacturing equipment in July up 8.5% YoY, a significant acceleration from previous growth rates.

In foreign trade, the price ratio remained flat last week, with market demand focused on cargo arriving in early September. Mid-week, the net outflow of BC copper warrants exceeded 15,000 mt, but there were few spot market offers, and premiums for cargo arriving in late August also remained flat. Mainstream pyro copper under mid-August bills of lading was offered a premium of around $60-70/mt, with actual transaction premiums at $55-65/mt. EQ copper offers increased compared to previous periods, and as we approach September, the imported copper market in the Shanghai bonded zone may be poised for another premium increase.

In the domestic market, the process of reduction in both social inventory and bonded zone inventory continued. With the SHFE copper contango structure narrowing again, the SHFE 2409 contract is likely to shift to a backwardation structure against the 2410 contract. Some holders are closing positions to lock in profits and re-establishing positions, leading to a large number of warrants putting pressure on spot premiums. This situation is similar to early August, and once inventory reduction reaches a new level, spot premiums are expected to rise significantly.

Looking ahead, as August comes to an end, domestic copper cathode consumption is about to enter its traditional peak season. The supply-demand structure has reached a new node, and the expected consumption growth in September may become the main focus of this round. In the short term, the imported copper market in the Shanghai bonded zone is gradually less affected by copper prices, and continued attention is needed on changes in domestic trade premiums.

4.uly Copper Tube Imports and Exports Both Decreased MoM but Remained Growth YoY

According to customs data, in July 2024, copper tube imports were 1,749.2 mt, down 10.6% MoM, up 58.6% YoY. From January to July, cumulative copper tube imports were 12,810.4 mt, up 40.7% YoY. In July, copper tube exports were 32,725.9 mt, down 3.7% MoM, up 25.6% YoY. From January to July, cumulative exports were 217,898.8 mt, up 13.1% YoY.

July decline in China's copper tube import data was mainly due to weakened domestic demand, as evidenced by the drop in SMM China's copper tube operating rate. However, in a year-on-year manner, imports still showed strong growth, with domestic production supported by export orders compared to the same period last year.

July copper tube exports in China decreased MoM but increased YoY. This was primarily due to improved overseas demand YoY, but demand also entered the off-season post-July.

By country, China's import share from Thailand significantly decreased in July, dropping from 52% in June to 29%. Import share from Japan increased from 12% in June to 18%. Notably, the import share from Iran accounted for 12%, a rare occurrence among historical import sources.

According to customs data, China imported "other copper cathode tubes with an outer diameter ≤25mm" and "copper cathode tubes with an outer diameter >70mm" from Iran, both under general trade. The import volumes were 143,405 kg and 72,020 kg, respectively. Among countries importing "other copper cathode tubes with an outer diameter ≤25mm" under general trade, Iran's price per kilogram was 65.06 yuan, the lowest among importing countries. The increase in China's copper tube imports from Iran in July may be due to price factors.

In summary, with the cooling of the domestic and international air conditioning markets, copper tube imports and exports are expected to gradually decline MoM. However, due to the low base last year, YoY growth in copper tube imports and exports will still be considerable.

5.Copper Prices Rebound, Linyi Metal City Sees Increased Secondary Copper Throughput

According data, from August 19 to August 23, the weekly average price of 1# copper cathode was 73,790 yuan/mt, up 1.97% WoW; the weekly average price of bare bright copper in east China was 68,020 yuan/mt, up 2.47% WoW; and the weekly average price of bundled cable scrap was 68,220 yuan/mt, up 2.47% WoW.

data shows that this week, the price of copper cathode futures rose compared to last week. Secondary copper traders in Linyi Metal City reported that the release of upstream secondary copper supply increased, but the growth was limited, and secondary copper remained relatively scarce. From the consumption side, secondary copper rod plants in Jiangxi, Hubei, and other regions have gradually resumed production, and procurement demand is also gradually increasing. Therefore, the increase in secondary copper supply has not alleviated the current tight situation. Overall, due to the rebound in copper prices, secondary copper supply increased; due to the resumption of some secondary copper rod plants, secondary copper demand also increased, leading to a WoW increase in secondary copper throughput in Linyi Metal City this week.

Looking ahead, this week, the US Bureau of Labor Statistics revised down the non-farm employment data, reducing the non-farm payrolls from April 2023 to March 2024 by 818,000, which has strengthened market expectations that the US Fed will soon start cutting interest rates. The market believes that copper prices may continue to rise, which will stimulate the release of secondary copper supply. Additionally, with the end of summer approaching, the recycling speed of secondary copper will also increase accordingly, and the supply of secondary copper is expected to further increase. Although some regions have already implemented Document No. 783, some secondary copper rod plants are gradually resuming production, and the demand for secondary copper is expected to continue to increase. In summary, the throughput of secondary copper in Linyi Metal City is expected to gradually rebound.