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China's copper production set to fall by a rare amount in September as tax changes hit scrap supply

Analysts predict that China's refined production of copper in September will experience a rare decline, the first since 2016. This is due to newly implemented tax regulations which are limiting the supply.

According to research agencies Shanghai Metals Market, Mysteel and Benchmark Minerals Intelligence, September's output of the world's biggest producer and consumer refined copper will drop by 4 to 5% compared to August's levels.

Analysts said that this, along with the expectation of a U.S. Federal Reserve rate cut, may support copper prices.

Analysts noted that the decline in copper scrap anodes occurred during a typical seasonal demand peak, because new tax rules made smelting it into anodes less lucrative. Anodes are an important input for the processors who produce refined copper. This is used widely in construction, manufacturing, and power infrastructure.

SMM data revealed that the number of anode-producing smelters will increase to five from three in September, a month ago, adding to the drop in production.

In the past, when refiners needed to maintain production, they could obtain some anode-copper from smelters. Right now, anode supply is tight and limiting refined output," said Yongcheng Zhao.

According to SMM, the operating rate of smelters that are fed scrap copper or anode-copper is expected to drop by 8.3 percentage point month-on-month in September to 59.9%.

According to two analysts, who spoke under condition of anonymity because they were not authorized to speak to the media, equipment maintenance could reduce consumption of copper concentrat, which is a key input to smelters. This would help to prevent spot processing fees from falling more dramatically, said these analysts.

They added that this could give Chinese smelters a bit of leverage when they negotiate with miners to determine the contract price for the next year in November.

A shortage of mining material has caused processing fees to fall into negative territory.

A persistent and acute concentrate shortage has forced some smelters to stop operations outside of China due to the arrival of new smelting capacities worldwide.

Analysts expect the dip in output to continue through October. This will not stop annual production from reaching a record level this year.

(source: Reuters)