Price: Further rise in copper scrap invoice tax points narrows refined-scrap copper price spread
Copper prices edged down slightly last week, but copper scrap prices remained relatively firm. Meanwhile, the copper scrap tax rate was raised again in October, further pushing up tax-inclusive scrap prices. Consequently, the price spread between refined copper and copper scrap narrowed. High invoice points directly pushed up the procurement cost of tax-included copper scrap. For bare bright copper, for example, each 1 percentage point increase in the invoice point raised the tax-included procurement cost by about Yuan 800-1,000/tonne. This significantly squeezed downstream processors' profit margins, and making it difficult to continue using the refined-scrap copper price spread as an indicator of substitution between refined copper and copper scrap in actual transactions.
Data Source: Mysteel
The average import prices for red copper scrap (99%-99.5% Cu) in China between October 12-16 increased slightly compared with the price between September 28 - October 9. Meanwhile, amid volatile domestic and overseas copper scrap prices, China's copper scrap import profit rose considerably last week, ranging between Yuan 1803.33/tonne and Yuan 2799.01/tonne. Looking ahead, the constraints of the reverse-invoicing policy on China's scrap sector will be hard to ease in the near term, and invoice shortages are likely to intensify, keeping demand for imported scrap strong. Therefore, China's copper scrap import volumes are expected to remain relatively high in the near term.
Data Source: Mysteel
Supply: Prices rally then retreat with holders more willing to sell
During the week, copper scrap prices rose sharply before pulling back, and overall copper scrap market activity recovered somewhat compared with earlier periods. Red copper scrap traders mostly sold actively during the price rally, and the spot circulation of scrap improved accordingly, although the market remained relatively tight overall. Once prices retreated, traders largely delivered against previous orders. With spot scrap prices staying elevated, their appetite for replenishing inventory was only moderate. In the brass scrap market, early in the week, the surge in copper prices lifted bullish sentiment, and upstream holders actively sold on the strength to lock in profits, loosening freely available supply for a time. Prices later fell back, yet retail holders held firm on their offers. With upstream trading margins narrow, traders became cautious and market activity was subdued.
Looking ahead to Q4, the reverse invoicing policy is expected to remain under strict enforcement. As tax authorities roll out fully digitalized electronic invoices and tax risk early-warning mechanisms, the efficiency of tax collection and administration keeps improving and corporate compliance costs continue to rise. Based on the latest survey of regional policies, no locality has so far introduced substantive measures to ease the impact of reverse invoicing, as most are taking a wait-and-see stance or making tentative, exploratory adjustments. The tightening of the reverse invoicing will therefore continue to curtail domestic scrap copper circulation in Q4.
Demand: Downstream buyers continue to buy only as needed
In terms of market trading, spot transactions of copper scrap improved from earlier levels but remained weak. Regarding red copper scrap, downstream enterprises were caught between sluggish production and sluggish sales, and mostly purchased on a rigid-need basis with low raw material inventories. Under policy influence, downstream processors concentrated their purchases on invoiced scrap, with limited acceptance of high-priced material. As a result, the expansion in overall transaction volumes was capped.
In terms of brass scrap, some downstream enterprises faced elevated raw material costs. To preserve margins on existing orders, they held finished product offers firm and even lifted them slightly within the week. Against this backdrop, end-user demand was slow to expand, and wait-and-see sentiment deepened.
Looking ahead, downstream processors' purchasing appetite in Q4 will likely be weighed down by persistently high invoice points. Even though some year-end rush to complete orders still exists, continuously rising invoice points are pushing up tax-inclusive procurement costs and severely compressing processing margins, prompting a number of enterprises to cut or suspend production. Operating rates at secondary copper rod producers are forecast to stay within the 14%-17% range in Q4, with little prospect of a marked recovery. Processing margins for secondary copper anodes are also unlikely to improve, with overall consumption for copper scrap limited.
More regular analysis and comprehensive data on China's copper industry are available in Mysteel Copper Weekly, Mysteel Copper Monthly, and Mysteel Copper Database. Reach out to us via Mysteel's official website: Latest & Reliable Copper Market Price in China | Mysteel, and follow Mysteel Non-Ferrous for more insights!
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Written by Zhaorui Cui, cuizhaorui@mysteel.com
Edited by Mingyuan Wang, wangmingyuan@mysteel.com
