China tax compliance push tightens invoice quotas, slows copper cargo flow

China's recent tightening of tax compliance regulations targeting the "invoice-driven economy" has restricted spot trading activities for copper cathode and scrap amid inadequate invoice quotas, said multiple China-based market sources, including traders and analysts, in the week ended April 30.

However, the development is not expected to have a significant impact on the full-year supply-demand balance, as its impact is seen as limited primarily to cargo circulation in the short term, according to the sources.

In the long run, some analysts said it will help regulate market order and drive the industry toward tax compliance and genuine transactions.

The "invoice-driven economy" in China stems from local governments offering tax rebates and incentives to invite companies to operate in their regions. Some firms are said to issue and receive invoices without corresponding real production or economic value.

China has been cracking down on such practices through strict regulations, including setting invoice quotas.

Tax authorities do not intend to impede legitimate transactions, but market participants are concerned that invoice quotas may be tightened excessively, thereby affecting actual trading volumes.

As a high-value commodity, copper requires substantial invoice receipts for circulation in the trading sector and has therefore been affected by this wave of compliance measures.

Some traders have been forced to scale back or suspend operations after local tax authorities began conducting strict compliance inspections in mid-April. The traders are facing insufficient invoice quotas due to restrictions imposed by the tax authorities and are waiting for quotas to become available, they said.

Premiums fall on restricted trading activities

Platts, part of S&P Global Energy, assessed Chinese copper import premiums at $65/metric ton plus London Metal Exchange cash, CIF China, April 30, for LME-registered normal brands of electrolytically refined cathode, down $3/mt from April 23.

A few Chinese traders said the tightening of invoice quotas in China restricted trading activities, as they were unable to receive import cargoes and sell in the domestic market, where importers also need invoices to complete such sales.

"Traders need to wait until invoice quotas are available before resuming trading activities," a trader said.

As a result, spot liquidity fell significantly over the week as traders restricted restocking.

Some traders were heard planning to divert spot shipments to ex-China markets in the current situation.

Although the import arbitrage window opened, spot premiums continued to fall amid limited bids.

"Sellers may prefer to wait for the forward shipments, but it is really difficult to find buyers for the prompt cargoes," the same trader said.

At the same time, some smelters were heard to be selling to the US and Indian markets instead due to higher premiums on the LME basis.

Copper scrap supply tightens

The recent decline in copper cathode prices, combined with the stricter tax rules, has also contributed to a tightening of copper scrap supply in the domestic market over the past two weeks, according to traders and analysts.

The resource recycling sector has struggled with a key issue for years: the lack of genuine source invoices.

To address this, China's State Taxation Administration implemented a "reverse invoicing" policy in April 2024, allowing the buyer (a resource recycling enterprise) to issue invoices to the seller (an individual selling scrap materials). However, the policy has faced certain obstacles in practice, according to the market sources.

To ensure compliance, the market is now seeing a gradual increase in demand for copper cathodes with official invoices, as well as for imported copper scrap.

Downstream processors that can use either recycled or refined copper are shifting to refined copper purchases, which is also one of the reasons for sustained destocking of copper cathodes, according to sources. A Chinese trader said this trend could carry through the end of the second quarter of 2026.

Copper stocks at the Shanghai Futures Exchange fell 9,348 metric tons week over week to 192,025 mt on April 30, marking the seventh consecutive week of decline, exchange data showed.