Surging Chinese scrap copper imports that have doubled in the first half of 2021 are displacing to some extent refined cathode, concentrate, anode and blister imports, with analysis by Roskill expecting the situation to worsen and potentially cripple the copper price recovery.

According to Roskill data, China is currently importing copper scrap from 95 countries with Malaysia (160,000 tonnes), Japan (130,000 tonnes), the United States (104,000 tonnes), Hong Kong (54,000 tonnes), Thailand (49,000 tonnes), Taiwan (40,000 tonnes), South Korea (31,000 tonnes), the U.K. (26,000 tonnes), Italy (23,000 tonnes) and all others (204,000 tonnes) the major sources.

China imported 821,000 tonnes of copper-based scrap in gross weight terms during the first six months, a 390,000 tonnes, or 91%, surge compared with the 431,000 tonnes of imports a year earlier.

Imports last year were negatively affected by Covid-19, lower prices, a U.S. trade embargo, logistics and, not least, by a self-imposed 50% reduction in scrap import quotas, as the Chinese government sought to achieve its green sustainability targets by end-2020.

After making some adjustments for the differing copper content from 2020 to 2021, Roskill estimates that this resulted in a 103% year-on-year, or 350,000 tonnes copper content, leap in China’s scrap imports.

According to Roskill, scrap supply is a complex function of price, generation, recovery rates and international logistics and an ultimate price adjustment mechanism for the copper market.

What happens to Chinese scrap imports in the second half of 2021 may do much to dictate what happens to copper prices over the balance of this year.

China’s monthly scrap imports averaged just 86,000 tonnes gross weight in the second half of 2020, and only began to accelerate from November once the new import regime came into effect.

“With H1 2021 already averaging 137,000 tonnes per month, and with some sequential improvements in global scrap availability still feeding through, Roskill concludes there is every likelihood that they could average 146,000 tonnes per month in H2 2021,” says the analyst.

This would be enough to boost China’s annual scrap imports up from 944,000 tonnes in 2020 to 1.7 million tonnes in 2021, a 756,000 tonne, or 80% surge.

“In copper content terms, this would theoretically be a 680,000 tonnes, or 91% rise. With 60% of scrap supply in China going to fabricators, and just 40% to smelters and refiners, this could potentially result in a 400,000 tonne hit to Chinese refined demand this year, as fabricators replace expensive refined copper cathodes with cheaper scrap.

“This would unquestionable result in a decline in Chinese refined consumption in 2021- hugely negative factor for world copper prices to surmount, despite the evident recovery in demand in the rest of world.

Meanwhile, Fitch Solutions country Risk & Industry Research says it expects near-term stabilisation after copper and tin reached fresh highs in May and July, respectively.

“Nevertheless, there should be no collapse and prices will remain elevated compared to previous years, on the back of tight fundamentals and positive investor sentiment due to the ongoing global economic recovery.

“In fact, we highlight upside risks to our forecasts for non-ferrous metals as new waves of covid 19 infections across the globe could once again lead to severe supply tightness in producing countries. We have revised up a number of metal price forecasts in recent weeks, namely copper, iron ore, steel, aluminium, tin and lead.”

Source: northernminer.