Copper Price Surge Widens Gap Between Primary Metal and Scrap

The price difference between primary metal and scrap copper has widened in recent months due to a combination of factors. Copper cathode prices have risen significantly, from 103,000 yuan/mt to 108,600 yuan/mt since July, an increase of over 6,400 yuan/mt.

In contrast, the price of domestic bare bright copper wire (excluding tax) has only increased by less than 1,800 yuan/mt, from 90,000 yuan/mt to 91,700 yuan/mt. This discrepancy is not solely due to rising copper prices but also due to other market dynamics.

SMM's observations indicate that the recent surge in copper prices has led to a short-term increase in copper scrap supply. However, the price increase of copper scrap has remained limited. Several factors are contributing to this phenomenon, including the implementation of the 'reverse invoicing' policy and the removal of rewards and subsidies for scrap utilization enterprises.

The 'reverse invoicing' policy has reduced raw material procurement volumes among scrap utilization enterprises, forcing them to purchase imported or domestically tax-inclusive copper scrap. This has led to a sharp decline in demand for tax-exclusive copper scrap, while tax-inclusive supplies have been snapped up. The invoice tax rate for scrap utilization enterprises has risen sharply, from 6.5% to 11.5%, and even reached 12% in the Guangdong region.

In addition, the removal of rewards and subsidies for scrap utilization enterprises will inevitably increase their operating costs, making it difficult for them to outbid copper scrap traders. This shift in cost burden will likely be passed on to upstream copper scrap suppliers. The cancellation of these incentives has already led to a significant reduction in the operating rate of secondary copper rod enterprises.

In summary, the widening price difference between primary metal and scrap is due to a combination of factors, including rising copper prices, the implementation of 'reverse invoicing,' and the removal of rewards and subsidies for scrap utilization enterprises. As these dynamics continue to shape the market, downstream consumption demand will play a crucial role in determining the price difference.