In the medium to long term, the reverse-charging invoice policy will reshape the secondary copper circulation system, accelerating industry consolidation, and high-precision copper billet for new energy and AI computing power will become the core growth driver for the copper billet industry in the future.

I. Full Review of Copper Billet Industry in H1 2026 (I) Policy Side: Strict Control of Reverse Invoicing, Long-Term Restriction on Recycled Raw Material Circulation In H1, fiscal and tax supervision became the core underlying constraint weighing on the copper billet industry. The reverse invoicing policy for recycled resources entered a phase of normalized, high-pressure implementation; natural-person individual sellers had an annual invoicing quota of 5 million yuan, which significantly narrowed circulation channels for domestic unticketed scrap brass. Grassroots recyclers showed low willingness to sell, leading to a persistent shortage of compliant domestic sources of secondary brass. During the policy transition period, corporate compliance costs rose notably. Small and medium-sized processing plants, lacking channels for stable raw materials with invoices, were forced to proactively cut production and undertake maintenance to avoid risks. Large top-tier players leveraged their international trade qualifications and stable import sources to buffer the raw material gap, accelerating the concentration of industry capacity toward compliant large-scale enterprises. The No. 770 policy on secondary copper tax rebates continued to tighten, completely compressing the grey circulation space in the industry. The contradiction of raw materials "having the goods but no invoices available, with invoiced goods at high prices" pervaded the entire H1 cycle. (II) Raw Materials and Imports/Exports: Domestic Secondary Supply Contracted, Premiums on Imported Secondary Brass Rose 1. Domestic Raw Material Bottleneck Intensified The compliant circulation volume of domestic scrap brass fell sharply YoY, weakening the cost advantages of secondary brass over copper cathode. Most brass billet plants faced difficulties in raw material procurement and high credit costs, and with the natural-person quota ceiling constraint, supply could hardly return to the level seen in previous years. Meanwhile, speculation in the brass scrap market further drove up prices, and copper-zinc separation operations raised overall raw material costs. 2. Imported Cargo Became a Mainstream Supplement, but Costs Continued to Rise Domestic enterprises turned to bulk purchasing of imported secondary brass with invoices. In H1, imports of secondary brass maintained YoY growth, however, overseas scrap copper export policy uncertainties and rising international copper prices pushed up procurement premiums. Available overseas scrap brass supply tightened, and import procurement coefficients continued to climb, further raising raw material costs for brass billet. Data Source: SMM From January to May, cumulative imports of brass billet in China were approximately 11,400 mt, down 1.23% YoY, but the cumulative import value reached $105.7079 million, up 23.42% YoY, highlighting a pattern of shrinking volume and rising prices. In terms of import sources, in May, South Korea remained the largest source country (accounting for approximately 40%), with Japan second (at approximately 16%), showing initial signs of regional diversification. (III) Costs and Prices: Copper Prices Swung Wildly at Highs, Industry RC Continued to Decline In H1 2026, copper cathode prices showed a pattern of "retreating after a rapid rise and consolidating at highs." Prices hit an annual peak in January and fell to a periodic low in March. In Q2, the price center stabilized above 100,000 yuan/mt, with the annual average price rising sharply YoY, directly lifting raw material costs for copper billet. As of end-June, the average spot price of Hpb59-1 brass billet in the Zhejiang region had climbed to a historical high of 70,650 yuan/mt. Price transmission had significant blockages: traditional downstream brass demand was sluggish, with end-users possessing strong bargaining power, so raw material price increases could not be smoothly transferred downstream. The industry exhibited a typical pressured pattern of "rising prices with weak volume." From April to May, the overall profitability pressure on the industry climbed to its worst level in the past two to three years. High-precision copper billet used in new energy and AI applications saw stronger RC resilience due to technical barriers and stable rigid demand, making it the only sub-category with relatively stable profits in H1. Coupled with rising logistics, tax, and capital occupation costs, most small and medium-sized brass billet enterprises remained in a state of meager profit or even losses over the long term. (IV) Supply and Demand: Demand Severely Polarized, Operating Rates Stayed Low 1. Supply Side: Operating Rate Weakened Month by Month, Enterprise Polarization Significant The overall copper billet operating rate drifted lower in H1, continuously falling back from 50.86% in January to 46.09% in June, with declines seen both YoY and MoM. The gap in capacity polarization continued to widen: large enterprises with stable raw material channels saw a 52.6% operating rate in June; medium-sized enterprises, squeezed by both raw materials and orders, operated at only 38.76%; small processing plants, facing raw material shortages and order scarcity, saw operating rates fall to 23.44%, intensifying industry polarization. Raw material constraints were the core supply-side constraint; coupled with losses forcing enterprises to control production, the overall industry capacity utilization rate remained in a historically low range in H1. 2. Demand Side: Traditional Sectors Weakened Deeply, Emerging Sectors Strengthened Independently Traditional brass demand (air conditioning, plumbing, valves, general hardware) remained persistently weak in H1. The downturn in the post-property cycle, combined with an early off-season for home appliances, saw downstream users purchasing as needed without concentrated restocking. Meanwhile, the substitution penetration rate of stainless steel in air conditioning parts continued to rise, continuously diverting rigid demand from brass, and brass billet orders shrank month by month. Data Source: SMM Structural demand support was concentrated in the copper billet segment: the three electric systems (power battery, drive motor, and electronic control system) of NEVs, large-power charging piles, energy storage PCS, AI server GPU cooling, and precision pins for optical modules continuously released stable rigid demand. Orders for high-purity oxygen-free copper billet were full, partially offsetting the overall decline in industry demand. However, with copper billet capacity accounting for a limited share, this was not enough to boost the brass segment's recovery. II. Market Outlook for Copper Billet Industry in H2 2026 In Q3, the industry is expected to be under pressure and hit bottom. The traditional off-season, coupled with high temperatures suppressing end-user procurement and the ongoing impact of stainless steel substitution, is expected to weigh on brass demand. SMM expects the overall copper billet operating rate to continue falling to 43.65% in July, hitting an annual low. Policy-side reverse invoicing supervision is unlikely to ease, capping the compliant supply of domestic scrap brass. Combined with continuously tightening controls on overseas scrap copper exports, the pattern of high premiums on imported secondary brass is expected to persist. The raw material bottleneck is set to run through the off-season. Brass billet is anticipated to be dragged down by the triple headwinds of the off-season, substitution, and low RCs, with profitability under sustained pressure in Q3. Only the continued commissioning of NEV and AI computing infrastructure projects is likely to bring rigid demand orders for copper billet, forming the sole demand support. In Q4, prosperity is expected to recover on a QoQ basis. As home appliances and plumbing enter their traditional stockpiling peak season, brass billet orders are expected to rebound MoM. Combined with year-end push for annual targets in PV, energy storage, and NEVs, demand for copper billet is expected to further strengthen, with industry operating rates and transactions both recovering. However, copper cathode prices are highly likely to continue consolidating at highs, with the raw material cost center stay high, putting cost pressure on processing enterprises throughout the year. In the medium and long term, the traditional brass demand center is expected to decline year by year, while AI computing, new energy, and energy storage constitute the core growth drivers of the copper billet industry. Small and medium-sized outdated capacity is expected to continuously exit the market, while top-tier players are simultaneously laying out high-end copper billet capacity. The three major thresholds of raw materials, orders, and compliance continue to widen the gap between enterprises, making the industry's transformation towards scale, compliance, and high-end manufacturing an irreversible trend. In summary: In H1 2026, the core contradictions in the copper billet industry were supply shortages caused by tightening recycled raw material policies, weakening traditional end-use demand, and the squeezing of processing profits by high copper prices. The industry relied on new energy and AI copper billet for structural support, maintaining a generally weak operating environment. In H2, the market is expected to show a pattern of initial weakness followed by later strength: in Q3, the triple negative resonance of the off-season, raw materials, and substitution is expected to keep operating rates and profitability under sustained pressure; in Q4, the combination of the traditional end-user peak season and continuously increasing volumes from emerging sectors is expected to repair industry prosperity on a QoQ basis. In the medium and long term, the reverse invoicing policy is reshaping the secondary copper circulation system, accelerating market clearing. High-precision copper billet for new energy and AI computing infrastructure is expected to become the core future growth line for the copper billet industry.

SMM statistics show the comprehensive operating rate of China's copper billet enterprises was 46.09% in June, down 3.18 percentage points MoM and pulling back slightly by 0.06 percentage points YoY

According to the latest SMM data, the comprehensive operating rate of China's copper billet enterprises continued its downward trend in June, with a significant polarization pattern between large and small mills. The tightening supply of recycled brass raw materials and the traditional end-use demand entering a deep off-season formed a dual drag, while only orders for copper billets from the new energy and AI supporting sectors provided structural support. Finished product inventories at enterprises accumulated slightly. Based on feedback from sample enterprises, market expectations for the industry in July were generally pessimistic, with the triple headwinds of off-season pressure, raw material bottlenecks, and material substitution resonating. The operating rate is expected to decline further. June industry operating data released, capacity polarization gap continues to widen : According to SMM statistics, the comprehensive operating rate of China's copper billet enterprises was 46.09% in June, down 3.18 percentage points MoM and pulling back slightly by 0.06 percentage point YoY, with overall production staying low. By enterprise scale, large leading enterprises leveraged stable raw material channels, ample capital reserves, and long-term quality client resources to show relatively stronger production resilience, with an operating rate of 52.6% in June; medium-sized enterprises were squeezed by both raw material and order pressures, restricting capacity release, with an operating rate of only 38.76%; small processing plants faced the most prominent pressure, with the operating rate falling to 23.44%, further intensifying the industry’s polarization. Supply-side bottlenecks remain unresolved, with losses continuing to squeeze processing margins : Raw material shortages remain the core pain point constraining copper billet production. Currently, reverse invoicing controls for recycled resources have been continuously tightened, significantly shrinking the circulation of compliant scrap brass in China. The willingness to sell at the recycling end is low, narrowing the procurement channels for domestic secondary copper at processing plants; enterprises have instead increased their purchases of imported recycled brass, but overseas quotations have continued to rise, keeping import procurement costs high. On the one hand, tight supply and purchasing premiums are driving up raw material costs; on the other, weak traditional end-user orders make it difficult to pass on processing charges , leaving most brass billet processing plants stuck in a “raw materials hard to buy, processing unprofitable” dilemma, with industry profit margins being continuously squeezed. Some small and medium-sized enterprises, facing losses from raw material costs, have proactively scaled back production schedules and controlled output to avoid risks, further dragging down the overall operating rate. Demand-side off-season characteristics are prominent, with demand from old and new tracks showing a stark contrast : The seasonal weakening of demand has had a clear impact on the industry. June is the traditional off-season for downstream brass consumption in air conditioning, plumbing, valves, and ordinary hardware. Downstream end-user enterprises purchased as needed, with no concentrated stockpiling. The scale of new orders continued to shrink, and the overall trading atmosphere for brass billets turned sluggish. Demand structure shows significant divergence : Traditional brass category orders continue to weaken, but high-purity copper billet demand provides a strong offset. Three electric systems for NEVs, large-power charging piles, PCS, as well as AI servers, GPU cooling modules, optical module precision pins and other parts continue to release stable rigid demand, driving copper billet enterprise orders to remain steady, becoming the only demand resilience sector in the industry. However, sluggish procurement from traditional end-users drags down the overall shipment pace, copper billet enterprises' finished product inventories continue to accumulate, and inventory pressure gradually emerges , with the stockpiling turnover cycle in plants lengthening and production enthusiasm further dampened. July market outlook: Multiple bearish factors resonate, and the operating rate is expected to decline again , based on frontline survey feedback from national sample copper billet enterprises, market expectations for July industry operation are generally pessimistic; improvement momentum is insufficient in the short term, and multiple negative factors will continue to ferment: raw material bottlenecks have no relief space in the short term, off-season pressure continues to intensify, and structural support is unlikely to boost the overall market. On both the supply and demand sides, SMM expects the comprehensive operating rate of domestic copper billet to fall by 2.44 percentage points MoM to 43.65% in July, down 1.17 percentage points YoY , and the industry's low-level operation is expected to persist. In the short term, the copper billet industry still needs to wait for the recovery of the traditional peak consumption season and a substantial easing in the supply of recycled raw materials before seeing a simultaneous recovery in operating rates and profitability.

★ Macro ★ 01 ★★ [Oil Prices May Return to the 7-Yuan Era] According to China's refined oil product price adjustment cycle, the 13th adjustment window of the year will open at 24:00 on July 3, with only 3 statistical working days remaining and 70% of the current pricing cycle completed. As reported by Dazhong Daily, the decline in oil prices has continued to widen during this cycle, deepening for six consecutive days from an initial drop of just over 0.4 yuan to the current level exceeding 0.65 yuan. The trend of a substantial cut appears largely irreversible, and this Friday evening may mark the year's first triple consecutive decline in oil prices, as well as the fourth price reduction in 2024. As of the calculation data from the 7th working day, estimated figures show a cut of 820 yuan/mt for gasoline and 790 yuan/mt for diesel. Converted to retail terminal unit prices, estimates show a drop of 0.66 yuan per liter for 92-octane gasoline, 0.7 yuan per liter for 95-octane gasoline, and 0.68 yuan per liter for 0# diesel. The two previous adjustments in June had already achieved a double consecutive decline, with cumulative cuts of 1,040 yuan/mt and 1,000 yuan/mt for gasoline and diesel respectively, equivalent to a cumulative price drop of between 0.84 and 0.89 yuan per liter. The price of 92-octane gasoline has fallen below 8 yuan, returning to the 7-yuan range. Once this round of cuts takes effect, the national average price for 95-octane gasoline may fall below 8 yuan, re-entering the 7-yuan era. 02 ★★ [US and Iranian Officials to Hold Indirect Talks in Doha] Sources stated on July 1 that officials from the US and Iran will hold indirect talks in the Qatari capital, Doha, later that day. ★ Industry and Downstream ★ 01 ★★ [Shenzhen Real Estate Market Hits New High for June Transactions in Nearly Six Years] According to data released today by the Shenzhen Centaline Research Center, first-hand and second-hand residential transactions in Shenzhen totaled 8,878 units in June, down 11.9% MoM yet up 14.2% YoY. The combined transaction volume was the highest for the same period since 2021. Specifically, online registrations for new housing (pre-sale and existing) amounted to 3,785 units, a decrease of 16.7% MoM but an increase of 15.6% YoY, while second-hand housing transfers reached 5,093 units, down 8% MoM but up 13.1% YoY. Monitoring data indicates that both new home pre-sales and second-hand home transactions in Shenzhen for the month reached record highs for the same period over the past six years, marking the best June performance for the property market in nearly six years. 02 ★★ [China-Made Air Conditioners See Export Orders Surge from Europe] Data shows that only about 20% of European households have air conditioning installed. Due to the concentrated surge in European demand for cooling, export orders for Chinese-made air conditioners have continued to grow. Air conditioning enterprises are working overtime to produce and fulfill these export orders. At an enterprise's air conditioner production workshop in Jiangmen, Guangdong, workers are rushing to assemble air conditioner parts. Since March this year, the enterprise’s export orders to the European market saw a sharp increase, with exports in May exceeding 800,000 units, up 20.3% YoY. The person in charge told the reporter that many residential buildings in Europe were built long ago, building facades are subject to strict controls, and installation procedures for traditional split air conditioners are complicated with high approval thresholds. Mobile air conditioners produced by Chinese enterprises, which require no outdoor unit and no wall drilling, precisely match the usage scenarios of local homes, apartments, and shops. An air conditioner enterprise’s sales in the French market in June surged over 100% YoY, while its Italian market sales rose 30% YoY in June. 03 ★★ [Chongqing: Promoting Housing "Trade-in" and Optimizing Support Policies such as "Selling Smaller to Buy Larger" and "Transfer with Mortgage"] The Chongqing Municipal Housing and Urban-Rural Development Committee is publicly soliciting opinions on the "Chongqing Urban Housing High-Quality Development 15th Five-Year Plan (Draft for Comments)". It proposes to promote a virtuous cycle in the new and second-hand housing markets, advance housing "trade-in", optimize support policies such as "selling smaller to buy larger" and "transfer with mortgage", reduce transaction costs, and foster synergy between the new and second-hand housing markets. Based on the "Yuyue Anju" system, fully implement online contract signing services for existing homes, establish and improve mechanisms for supervision of existing home transaction funds, listing and release of property listings, and price monitoring; simplify the transaction process, strengthen real estate registration information sharing, automatically verify property information, and promote "one-stop acceptance" and full online processing of transaction services. 04 ★★ [TISCO Steel Science & Technology Company Successfully Trials T1100S-Grade Ultra-High-Strength Carbon Fiber in a Single Attempt] According to China Baowu, recently, the TISCO Steel Science & Technology Company under China Baowu successfully trial-produced T1100S-grade ultra-high-strength carbon fiber in a single attempt, with excellent performance across all key indicators, reaching domestic leading and international advanced levels. Carbon fiber is a key strategic material supporting aerospace and high-end equipment manufacturing. From aircraft structural components to rocket casings, breakthroughs in lightweight materials directly determine the performance ceiling of equipment. The T1100S grade, meanwhile, is a top-tier high-modulus, ultra-high-strength carbon fiber in the industry, with extremely high technical barriers, and has long been a key focus of China’s new material breakthroughs. 05 ★★ [In H1, New Home Prices in 100 Chinese Cities Edge Up Cumulatively, While Second-Hand Home Prices Fall] In the first half of this year, new home prices in 100 Chinese cities continued a structural uptrend. In June, the average new home price in the 100 cities was 17,184 yuan per m², up 0.16% MoM and up 2% YoY. Second-hand home prices in the 100 cities fell cumulatively. In June, the average second-hand home price in the 100 cities was 12,639 yuan per m², down 0.42% MoM and down 7.68% YoY. Core cities were the first to show positive signals: Shenzhen’s second-hand home prices turned to a month-on-month increase in June, while Shanghai’s second-hand home prices rose MoM for four consecutive months. ★Other Hot Topics★ ⭕ [China Fully Enters Main Flooding Season Today] Starting July 1, China fully entered the main flooding season. According to forecasts and comprehensive assessments, during the main flooding season (July–August), both northern and southern China will see areas of heavy rainfall, with the north facing relatively severe flooding, more frequent localized extreme rainstorms and floods, and stronger typhoons moving northward to affect inland areas. Meanwhile, parts of the southwest and northwest may experience periodic droughts due to high temperatures and low rainfall. The flood control and drought relief situation is severe and complex. On the morning of July 1, the Ministry of Water Resources organized a rolling consultation to analyze and assess the current and near-term development of rainfall, water conditions, flooding, and drought, and deployed targeted key preventive measures accordingly. Based on the 24-hour rainfall forecast, the ministry issued province-specific targeted early warnings to 14 provinces (autonomous regions and municipalities), including Liaoning, Shanghai, Zhejiang, Anhui, Jiangxi, Hubei, Hunan, Guangxi, Sichuan, Guizhou, Yunnan, Gansu, Qinghai, and Xinjiang. These warnings detailed lists of counties (cities and districts) under heavy rainfall coverage, reservoir lists, and flash flood disaster risk areas and locations, and reminded relevant parties to ensure safe reservoir operation during flooding, and to guard against small and medium river floods and flash flood disasters. ⭕ [Domestic Route Fuel Surcharges to Be Sharply Cut from July 5] 9 Air issued a notice today stating that effective July 5, 2026 (ticket issuance date), domestic route fuel surcharges will be reduced. For routes over 800 kilometers, each passenger will be charged 100 yuan, and for routes of 800 kilometers or less, each passenger will be charged 50 yuan, representing cuts of 50 yuan and 30 yuan, respectively, from the previous levels. In April and May this year, domestic fuel surcharges were raised significantly for consecutive months. Starting June 5, they were reduced by 20 yuan and 10 yuan for the two categories. With the decline in fuel prices, the fuel surcharge reduction in July is much larger. ⭕ ["US ADP Employment Data" Lower Than Expected] US ADP employment for June was 98,000, the lowest increase since March, below the expected 118,000. The prior reading was 122,000. *This report is an original work and/or compilation produced exclusively by SMM Information & Technology Co., Ltd. (hereinafter referred to as "SMM"). SMM legally holds the copyright and is protected by the Copyright Law of the People's Republic of China and other applicable laws and international treaties. No reproduction, modification, sale, transfer, display, translation, compilation, dissemination, or any other form of disclosure of the above content to third parties or licensing thereof is permitted without written authorization. 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"The heatwave has significantly driven sales growth, especially the PortaSplit air conditioner, which has sold out in some sales channels."