Global Copper Squeeze, But China Withstands Pressure with Near-Record Production

Published on: May 28, 2024
Author: Amy Liu

The global copper market is overshadowed by concerns of copper supply shortages, leading to record-high copper prices and sparking a $49 billion acquisition battle. However, in China, the world’s largest producer and consumer of refined metals, there is an ample supply of copper.

At the heart of this challenge are the continuously expanding copper smelters in China. Despite raw material shortages, rising prices are unlocking more scrap metal for processing, allowing China to maintain copper production close to historic highs.

Due to tight supply of imported ore used as raw materials, smelters have significantly reduced costs, with some even committing to cut production capacity. The prospect of insufficient copper supply in China is just one pillar supporting last week’s copper price breakthrough above $11,000 per ton for the first time. In recent days, the mismatch between supply and demand has become more apparent, causing copper prices to fall back above $10,300 per ton. While copper prices have still risen by 21% this year, this indicates that further progress may be challenging as long as China continues to have oversupply.

According to Liang Kaihui, an analyst with Shanghai Metals Market, the surge in copper prices has led to a rapid increase in supply of scrap material from discarded cans, pipes, and wires. Manufacturers have been busy turning this scrap into blister copper (a semi-refined version of the metal) and sending it back to smelters to replace overseas ore currently in short supply.

Data from the Shanghai Metals Market shows that the price gap between scrap copper and refined copper soared to RMB 4,615 per ton (equivalent to $637), reaching the highest level in at least eight years.

Meanwhile, the smelting industry’s production capacity continues to increase. As long as they can make a profit, companies are willing to sacrifice profit margins to defend market share. Local governments also desire companies to keep producing metals to achieve economic growth targets and maintain employment levels.

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