HONG KONG: Chinese copper producers are cutting demand for raw material scrap due to low margins at a time of weak metal prices, which could slow down growth in China's production of refined copper this year, industry sources said.
It could also make producers more dependent on copper concentrates, boosting demand for imports.
China is the world's top producer and consumer of refined copper. Nearly a third of its output has come from copper scrap in the past two years.
"Refined copper production would be more determined by smelting capacity than refining capacity," an executive at a large copper producer said, declining to be named because he was not authorised to speak to the media.
The producer has a 100,000-tonne-a-year unit that now uses blister in place of copper scrap, he said. Blister is smelted from copper concentrate and used for refined metal production.
The executive expected China's refined copper production to rise by 300,000-400,000 tonnes in 2015 from an estimated 6.2-6.3 million tonnes in 2014. Last year production rose between 600,000 and 700,000 tonnes.
Many copper producers reduced or stopped buying scrap after metal prices fell below production costs this month, traders and producer sources said.
In contrast, processing fees for copper concentrate imports have hit a 10-year high this year.
Refined copper production would be limited by lower output of scrap-made metal, said a manager at another large producer that has idled a facility in the past few months.
A 300,000-tonne-a-year scrap-feed facility in Guangxi was seeking approval from the authorities for an upgrading so that it could use concentrate, a company source said.
China would add 650,000 tonnes of smelting capacity, which uses concentrate as feed, to 6.25 million tonnes in 2015, according to state-backed research firm Antaike.
Refining capacity is expected to rise by about 800,000 tonnes to above 10 million tonnes in 2015.
Copper prices have hit 5-1/2-year lows this year, a drop that has prompted Chinese copper scrap suppliers to hold on to their stocks, the sources said.
Most suppliers, who buy copper scrap from both the domestic and international market, do not hedge their stocks, leaving them exposed to price volatility and unwilling to sell their stocks at low prices.
That disrupts supply to copper producers and can eventually push scrap prices higher.
Imported scrap with more than 94 percent copper content was quoted at about 39,000 yuan ($6,244) per tonne on Wednesday, while refined metal traded at about 41,790 yuan.
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