Key China copper gauge rallies to $100 after tax crackdown

A closely-watched gauge of China’s copper market has risen to the highest in more than a year, as a tax shake-up in the metal’s biggest market spurs a shortage of scrap and boosts demand for imports.

The premium paid for imported copper over local supplies widened to $100 a ton on Friday, according to data from Shanghai Metals Market. That’s up from a low of $20 a ton that was set in late January, and the first time that the metric has hit the three-digit mark since May last year.

Copper on the London Metal Exchange has gained about 9% so far in 2026, aided by optimism about demand, speculation the US may impose a tariff on refined metal and shifts in inventories. That’s offset jitters caused by the Iran war, concerns the Federal Reserve may tighten monetary policy and recent signs that optimism about artificial intelligence — a key driver of future metals usage — may be overdone.

An additional driver may be Beijing’s campaign against the so-called invoice economy in which traders use tax receipts to secure financing. The months-long crackdown has weighed on scrap processors, constraining their ability to operate and prompting drawdowns of exchange-traded cathode metal.

“We attribute the recent tightening mostly to substitution from scrap into cathode, rather than to end demand,” Goldman Sachs Group Inc. analysts including Lavinia Forcellese wrote in a July 20 note. “Tighter VAT enforcement on scrap in China has constrained domestic scrap circulation,” they added, referring to value-added tax by its initials.

The rising premiums and falling stockpiles in some centers may point to underlying support in the physical market. Inventories in LME-tracked warehouses on Friday fell to the lowest since March. Traders are withdrawing copper from the LME to deliver to the Chinese market, according to people familiar with the matter.

Stockpiles in China, meanwhile, are at the bottom of their seasonal range and offer “little inventory cushion” for the market, the Goldman analysts said.

In the US, by contrast, Comex-tracked copper holdings are at a record, having expanded for the past eight quarters.

In China, a series of temporary smelter outages for maintenance may also have added to the pinch. One-in-seven such facilities was inactive from April to June, according to Earth-i, a data agency that monitors activity using satellites. The so-called inactivity rate climbed to 14% from 5.5% a quarter ago, it said.

Usually, when producers shut down primary furnace for maintenance, they purchase an extra amount of intermediate products such as scrap, ingots or anodes to offset the production loss. But the availability of scrap has dropped drastically this year given that many traders and yards, as informal entities, could not get invoicing quotas because of the crackdown.

Scrap smelters have been running at minimal rates, according to a recent report from SMM.

Copper prices rose 0.6% to $13,608 a ton as of 11:28 a.m. on the LME, climbing after Iran’s Foreign Ministry said it had received proposals from mediators regarding the war with the US. Oil prices erased gains, after earlier rising as the US conducted a ninth straight day of airstrikes on Iran.

(By Julian Luk and Martin Ritchie)