Key insights
- Copper scrap payability coefficients are unusually resilient despite price fluctuations, defying traditional supply/demand dynamics. This is attributed to China's tightened domestic policies and tax compliance, boosting demand for imported scrap, while overseas supply remains constrained. This indicates structural tightness in the copper market extending to recycled materials, suggesting potential upward pressure on primary copper prices and impacting producers and explorers.
There's an old rule in copper markets. When prices surge, scrap payability coefficients drop. More metal chasing the same material, buyers get picky, premiums compress. Simple supply and demand logic that held up for years. May just broke that rule pretty cleanly.
Copper prices surged then pulled back, but scrap payability coefficients barely moved. Millberry - the cleanest grade of copper scrap - held at 98.5%. No. 2 copper, which is lower grade and usually more volatile, actually climbed from around 95% to 96-97%. That move was partly driven by gold and silver byproducts making the material more valuable than the copper price alone suggests.
The reason the old logic stopped working is pretty straightforward once you see it. China tightened domestic policies and tax compliance, which kept demand for imported scrap unusually robust. At the same time overseas scrap supply stayed tight. You've got strong demand on one side and constrained supply on the other, and that combination made payability coefficients sticky in a way the market wasn't really priced for.
What this tells you about the broader copper picture is that the supply stress isn't just showing up in mine output or project pipelines. It's showing up in the recycled metal market too. Scrap is supposed to be the flexible relief valve when primary copper gets expensive. Right now that valve isn't releasing much pressure.
For anyone watching the copper supply chain - whether that's producers like FCX and TECK, developers or early stage explorers like NRED and KDK working on future primary supply - the scrap market quietly confirming the same structural tightness as everything else is worth paying attention to.