The most telling component of the recent monthly China copper data was the collapse in scrap imports in February to a five-year low and the second lowest level in the past 10 years .This data point is significant because it demonstrates the tightening effect the sharp fall in prices has had on the refined copper market via the scrap supply channel. Scrap merchants are typically the fastest on the supply side of the copper market to react to price movements. This is important because scrap is the key feed material for secondary refined copper producers, who generated a significant 30% of total refined copper in China in 2014. “We estimate that in turn, China’s secondary output fell 10% y/y from October last year to February 2015, which amounts to a near 100 thousand tonne (kt) fall in production”, Says Standard CharteredWhile mine supply disruptions year-to-date have been significant, the impact on the refined market has so far been limited by existing concentrate stock versus the more direct feed-through from the tightness in scrap supply.”We expect end-demand conditions in China to improve modestly in the coming months, with subsequent support for higher copper prices (Q2-2015 average: USD 6,250/tonne). This improved price signal should ease some of the constraint on scrap supply “, added Standard Chartered
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