Tax Crackdown Tightens Scrap Copper Supply, China's Copper Import Premium Rises to $100
N.R. Finch
China's copper import premium hit $100 per tonne on July 18 — a triple-digit level not seen in over a year. Goldman Sachs says the driver is not demand but a tax crackdown choking scrap-copper flows, forcing the market onto costlier refined metal and structurally reshaping copper pricing.
From $20 to $100 in six months — what happened?
China's copper import premium — the price gap between imported copper and local supply — surged from $20/tonne in late January to $100/tonne on July 18, a fivefold jump.
This means → physical copper available inside China is shrinking fast; buyers must pay sharply more to source metal from overseas.
The gauge is tracked by Shanghai Metals Market (SMM) and serves as the most direct thermometer for tightness in China's physical copper market.
Why did scrap copper suddenly dry up?
Goldman Sachs analyst Lavinia Forcellese and colleagues wrote on July 20 that the tightening is not driven by end-user demand but by "substitution from scrap to refined copper."
In plain terms = scrap copper used to be a major supply source; that channel is now blocked, pushing the market toward pricier refined metal.
The blockage: authorities are cracking down on the "invoice economy" — traders using VAT invoices to obtain financing. This has severely curtailed scrap processors' ability to operate; SMM reports that scrap smelter utilisation rates are at extremely low levels.
Why are smelter shutdowns making things worse?
Satellite-data firm Earth-i shows that roughly one-seventh of China's copper smelting capacity was offline between April and June, with the shutdown rate rising from 5.5% the prior quarter to 14%.
Normally, smelters buy extra scrap, blister, or anodes during maintenance to cover lost output — but the scrap supply crunch has cut off that fallback.
This means → two supply gaps opened at once: scrap choked by the tax crackdown, and smelters idled for maintenance. The overlap amplifies the squeeze.
What is the global inventory picture telling us?
LME warehouse copper stocks fell to their lowest since March on July 18; Chinese copper inventories sit at the bottom of their seasonal range, offering what Goldman calls "extremely limited inventory buffer."
Yet across the Pacific the picture is the opposite: US Comex-tracked copper stocks are at record highs, having expanded for eight consecutive quarters.
This reflects a regional, not global, shortage — China is tight while the US is flush. The divergence itself signals the problem lies in China's domestic supply chain, not in a worldwide demand surge.
Where does copper go from here?
London copper is up roughly 9% year-to-date, supported by optimistic demand expectations, the prospect of US tariffs on refined copper, and shifting inventories.
Counterweights exist too: Iran-related risk aversion, possible Fed tightening, and doubts that AI-driven demand forecasts are overstated.
In plain terms = whether scrap supply recovers as regulatory pressure eases is the key variable. If the crackdown persists, refined-copper substitution demand stays, and the premium holds. If enforcement loosens, scrap flows back — and the premium may deflate.
Content is for reference only, not financial advice.