1.China's Copper Cathode & Secondary Copper Rods Both Weak: What's Happening in the Market?

The "September-October peak season," traditionally a peak season for copper rods, has shown weak consumption this year. The peak season is not as strong as expected, with new orders hard to sustain. This lack of significant consumption recovery is not only seen in the copper cathode rod industry but also in the secondary copper rod industry. Recently, the market has shown weakness in both copper cathode rods and secondary copper rods. What are the reasons behind this? Below is a detailed analysis of the recent market situation:

From the above chart, it can be seen that although copper prices have declined since October, they are still significantly higher than the lows seen in early August and early September. The absolute prices remain beyond the acceptable range for downstream enterprises, and most downstream enterprises are still adopting a wait-and-see attitude. New orders for copper cathode rod makers are generally under pressure, and downstream consumption has not been significantly released since the holiday. As of now, the weekly operating rate of copper cathode rod production has not yet returned to the normal pre-holiday level and shows a downward trend (see the chart below).

Although copper prices remain high, the price difference between primary metal and scrap has not brought a price advantage to the secondary copper rod industry as expected. Since the National Day holiday, the price difference between primary metal and scrap reached a peak of 1,205 yuan/mt on October 8, but mostly stayed below 1,000 yuan/mt thereafter. There are two main reasons for this: first, copper prices have maintained a fluctuating trend at this level, and most copper scrap holders are holding back cargoes. At the same time, the policy for the recycling industry has not been fully implemented, leading to an unclear outlook, and the dismantling volume of copper scrap has also declined to some extent, dragging down supply. These two factors have caused the current secondary copper prices to remain high without following the market trend, making it difficult to procure materials, and secondary copper rod makers are struggling to maintain their operating rates. Additionally, according to some secondary copper rod makers, the current weak end-use demand combined with the small price difference between primary metal and scrap has resulted in sluggish consumption, making it difficult to raise secondary copper rod prices. Based on the current secondary copper prices and secondary copper rod quotations, the processing fee for the secondary copper rod industry is nearly zero.

In summary, the current overall copper rod market is not performing as expected during the peak season, with weak end-use demand and overall lower-than-expected results. According to the survey results, copper rod consumption has been consistently dragged down by the real estate sector this year. Additionally, since the beginning of the year, the operating rate of infrastructure projects has been suppressed after debt restructuring. As the year-end approaches and the northern market may be affected by weather and pollution during the autumn and winter, end-use operating rates will be further impacted, making it difficult to find support for consumption.

It is worth noting that the previous central meeting mentioned addressing existing projects within the year through ultra-long-term government bonds, which would drive actual workload. If existing projects receive support and real estate development resumes, sustainable consumption recovery may be seen within the year.

2.The US dollar index fell back from a two-month high, and copper prices closed higher overnight

Overnight, LME copper opened at $9,589.5/mt, initially reaching a high of $9,601/mt. It then fluctuated downward, hitting a low of $9,496/mt during the session. By the end of the session, it rose again, closing at $9,563/mt, up 0.63%. Trading volume reached 18,000 lots, and open interest was 275,000 lots. Overnight, the most-traded SHFE copper 2412 contract opened at 76,700 yuan/mt, initially reaching a high of 76,800 yuan/mt. It then fluctuated downward, hitting a low of 76,130 yuan/mt during the session. By the end of the session, it rose again, closing at 76,590 yuan/mt, up 0.08%. Trading volume reached 49,000 lots, and open interest was 152,000 lots. Macro side, the initial jobless claims in the US for the week ending October 19 recorded 227,000, the lowest since the week ending September 28, 2024. Currently, traders tend to believe that the European Central Bank will cut interest rates by 50 basis points in December. However, ECB Governing Council member Wunsch stated that there is no need to discuss a 50 basis point rate cut at this stage. Amid concerns over demand, oil prices fell, dragging copper prices down temporarily. However, as the US dollar index fell back from its high, copper prices eventually closed higher. Additionally, the National Development and Reform Commission stated that it would further open major national scientific research infrastructure to private enterprises. Fundamentally, arrivals decreased, and market trading continued to weaken, with holders generally pessimistic about October. As of Thursday, October 24, SMM copper inventories in major regions across China increased slightly by 200 mt from Monday to 219,600 mt, still 54,100 mt higher than before the holiday. However, weekly destocking was achieved this week, though the destocking volume was not large, only 9,600 mt. In summary, although the US dollar index fell back from its high, market trading remained mediocre. Copper prices are expected to maintain a fluctuating trend at this level today. 

3. In September, copper cathode imports surged and are expected to remain high in October 

According to data from the General Administration of Customs, China imported a total of 2.649 million mt of copper cathode from January to September 2024, up 6.54% YoY. Among them, September imports were 322,500 mt, up 29.19% MoM, but down 1.71% YoY. From January to September, China exported a total of 419,000 mt of copper cathode, up 77.91% YoY. Among them, September exports were 16,000 mt, down 47.86% MoM and down 12.01% YoY.

In terms of imports, September copper cathode imports totaled 322,500 mt, up 29.19% MoM, but down 1.71% YoY. Among them, copper cathode imports from Africa totaled 129,000 mt, up 27.73% MoM, accounting for 40% of total imports. Copper cathode imports from the Democratic Republic of Congo, Zambia, and the Republic of Congo all increased significantly. According to SMM, this growth mainly stemmed from increased local copper cathode production, which compensated for previous long-term contract gaps, leading to more copper cathode imports from Africa in September. Additionally, delayed shipments from South America in August arrived in September, combined with the scheduled September arrivals of long-term contracts, significantly increasing copper cathode imports from South America. Copper cathode from Chile and Peru increased by 28.24% and 50.4% MoM, respectively. Furthermore, copper cathode from Russia also saw a seasonal increase in September.

In terms of exports, September copper cathode exports were 16,000 mt, continuing to decline from August. Due to the complete closure of the export window, domestic refineries had no additional export volume except for fixed long-term contracts.

Looking ahead, according copper cathode from Africa and South America will remain abundant in October. Additionally, a large amount of copper cathode will be transported back to China from LME Asian warehouses in October, so copper cathode imports are expected to continue to increase slightly. On the export side, the export window remains closed, and October exports are expected to mainly consist of long-term contracts, with little change from September.

4.2024-2028 global copper concentrates supply-demand balance results are released! 

As 2024 is drawing to a close, the interference rate and production situation on the supply and demand sides this year have become clearer. Based on public data, survey data on the supply and demand sides throughout the year, and assessment of future conditions, has derived the expected global copper concentrates supply-demand balance results for 2024-2028.

On the supply side, the global increase in copper concentrates mainly comes from the expansion of brownfield copper mine projects rather than greenfield copper mine projects. There are very few large high-quality potential greenfield projects available for development globally. Currently, greenfield copper mine projects include Mongolia's Tsagaan Suvarga copper mine, China's Hongniupo copper mine, the Philippines' Tampakan, Afghanistan's Mes Aynak, and Argentina's Josemaria Project.

On the demand side, global copper primary smelting capacity is rapidly increasing, with China being a significant driver of this rapid expansion. From 2024 to 2028, several large copper primary smelting projects will be launched in China, posing a significant challenge for Chinese smelters in procuring copper concentrates.

After sorting out the basic situation on both the supply and demand sides, SMM combined the interference rates on both sides to obtain the expected global copper concentrates supply-demand balance table for 2024-2028. believes that this year's supply-demand balance result is already negative, but next year's result will be severely imbalanced to -822,000 mt in metal content. After that, the negative value will gradually converge, which means that copper smelters, represented by those in Asia, may face capacity exits, mergers and acquisitions, or bankruptcy liquidations. Currently, it seems that only liquidating some primary smelting capacity can reverse the shortage of copper concentrates.

5.September Copper Scrap Imports Decrease Both YoY and MoM, Japan's Exports to China Show Significant Decline

According to the latest data from the General Administration of Customs, China imported approximately 160,000 mt of copper scrap and shredded copper scrap in September 2024, down 5.74% MoM and 6.2% YoY (HS code 74040000).

Regarding supplier countries, the United States, Malaysia, and Japan continued to occupy the top three positions. The United States, as the largest supplier, exported about 32,000 mt of copper scrap to China in September, up 8.38% MoM but down 3.1% YoY. Malaysia, the second-largest supplier, exported about 17,000 mt of copper scrap to China in September, down 4.71% MoM. Japan, as the third-largest supplier, exported about 16,000 mt of copper scrap to China in September, down 6.9% YoY and showing a significant MoM decline of 19.7%.

According to a report by the Nikkei on June 3, 2024, the Japanese government plans to invest 30 billion yen over three years, in cooperation with Mitsubishi Materials Corporation and others, to build about 10 recycling facilities for used home appliances domestically. This aims to prevent the outflow of rare metals such as copper and strengthen economic security, which may have led to a recent decrease in copper scrap exports. With the establishment and operation of these recycling facilities,  expects Japan's copper scrap exports to continue to decline in Q4.

From the current market situation, believes that the fluctuation in copper scrap imports in September is a normal phenomenon. According to traders, there is indeed a demand for factory construction in Tokyo and Osaka, Japan's economic centers, which has increased local copper usage and consequently reduced copper scrap exports to China.

Looking ahead, in terms of import profitability, although imports turned profitable in mid-October, import traders indicated that the short-term window opening would not fully boost purchasing sentiment. Additionally, some traders noted that overseas copper scrap has been relatively scarce in the past two to three months, especially in Europe. As the "September-October peak season" gradually comes to an end, demand for copper is expected to decline. Therefore, expects that October copper scrap imports may slightly decrease MoM but are unlikely to show significant volatility.