High Prices Hit China Copper Scrap Importers

China craves copper scrap as the country's smelters battle high production costs and a shortage of alternative raw materials, industry officials said on Friday.

But buyers returning from the Lunar New Year holiday said they were refraining from purchasing large cargoes as scrap prices were too high following a surge in the benchmark London Metal Exchange (LME) copper price to a 7-1/2-year high this week.

"The Chinese are now coming back after New Year, nervous but needing the material," said Michael Lion, an exclusive consultant to Sims Group Ltd., the world's largest recycling firm.

"The shortages that exist in (copper) concentrate and blister are so acute that they'd love every pound of scrap they could get hold of, but it just isn't there in the proportions that are needed," Lion said.

Traders in China's largest scrap trading base, Nanhai in Guangdong province, said fluctuating metals prices had made many buyers wary of committing to new scrap cargoes.

"The market is very confusing. We wouldn't buy now. Prices are too high and copper prices may have a big correction soon," a Chinese buyer of copper scrap told Reuters.

A trader in Nanhai who regularly imports No 7 category copper scrap to resell to processors said high copper prices had triggered importers to offer more scrap.

But he said his company would consider taking a smaller lot for its next imported shipment, as it believed prices were too high.

"We paid $970 a metric ton for the last shipment, $20 to $30 higher than the previous one," he said.

China imports mainly No 2 copper scrap and the lower-quality No 6 and No 7 grades, including wire, cable, small motors and power generators that contain less than 80 percent copper metal.

Lion said smelters had little choice but to pay higher prices for prompt delivery of copper scrap.

"They cannot turn their back on the market for the quite simple reason that there's not sufficient material," he said.

Lion said discounts on imports to China of No 2 copper scrap grades such as Birch/Cliff had widened since Chinese New Year.

He said Chinese buyers were now paying between 94 and 97 percent of the LME copper cash settlement price for No 2 grades.

"It's a pretty significant moving target at the moment. The three-percent spread is wide, as there are quite a few factors that will make a particular parcel worth more than another to a particular person," he said.

In China's eastern port city of Ningbo, offers for spot cargoes of imported No 2 refined copper scrap were quoted at about 24,400 yuan ($2,948) a metric ton, traders said.

On Friday, spot copper was offered at 26,490 yuan to 26,630 yuan a metric ton in Shanghai, China's largest copper retailing base.

Benchmark LME three-month copper was trading at $2,685/2,689 a metric ton at 0850 GMT on Friday after touching a 7-1/2-year high of $2,705.50 on Thursday. The cash price was around $30 higher.

China imported 3.16 million metric tons of copper scrap last year, 2.6 percent more than in the previous year, official customs data showed.

Imports from Japan jumped 25.3 percent to 1.3 million metric tons. Mainland China imported 612,542 metric tons from the U.S. and 298,882 metric tons from Hong Kong, down 0.9 and 14.6 percent year-on-year respectively, the data showed.