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AmextaFinance > News > Smelters pay to process copper as China expands capacity
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Smelters pay to process copper as China expands capacity

News Room
Last updated: 2025/06/10 at 4:20 AM
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Copper smelters are paying record sums to turn raw concentrate into the red metal, following moves by China to try to dominate the global market through a huge building programme of processing facilities.

The fee smelters charge to process copper concentrate — for which they would in normal times expect to earn a healthy margin — has been negative for most of this year and hit a record low of minus $45 a tonne at the end of May, according to data from price reporting group Fastmarkets.

That means such industrial facilities are in effect paying to process concentrate in order to keep their operations running, which analyst warn is putting pressure on the viability of many smelters.

There was likely to be “reduced copper smelter activity and potentially also some shutdowns in the Asian market”, said Toralf Haag, chief executive of copper producer Aurubis.

China has been trying to build dominant positions in base metals markets, while western nations are trying to break their dependence on the Asian country for these commodities.

Copper is among the critical minerals needed for a host of key sectors including energy, technology and electric vehicles, and China has expanded its copper smelting capacity even in the face of a shortage of the concentrate that feeds the facilities.

Commodities trader Glencore in March said it was halting operations at its Pasar smelter in the Philippines, citing “increasingly challenging market conditions”.

Commodities analysis group CRU last week said downward pressure on the fee for processing copper concentrate was being exacerbated by the continued commissioning of new Chinese smelters.

Smelters buy the raw material at the spot price and in long-term contracts, and typically expect to make money from processing the concentrate for a fee. They also make money from selling any additional metal, such as gold, that they can extract from the raw material.

The “fee” Fastmarkets calculated is in practice a discount in the price smelters pay for raw materials relative to the London copper price, although that discount has turned to a premium this year. The de facto fee has risen slightly to about minus $43.25 in recent days but is still close to its record low, as smelter overcapacity and a lack of concentrate weigh on the market.

The negative fees come even though the London price of copper hit a record high of almost $11,000 a tonne last year. On Monday it was trading at roughly $9,700 a tonne, having briefly hit $10,000 this year, amid concerns over shortages. Global demand is expected to outstrip supply by 30 per cent by 2035, according to the International Energy Agency.

Smelters are in negotiations with miners over longer-term contracts for concentrate, and analysts have warned that the benchmark processing fee on these contracts could turn negative for the first time.

Such an outcome “may be the game changer that finally forces meaningful smelting capacity reductions”, said Andrew Cole, principal analyst for base metals at Fastmarkets.

Albert Mackenzie, copper analyst at Benchmark Mineral Intelligence, said: “Smelters are hesitant to accept a negative mid-year benchmark due to concerns it will set a precedent for a negative full-year settlement.”

That would “challenge the economics of many smelters around the world”, he said.

Because “the concentrate market is expected to tighten further next year”, some smelters might not be able to source enough feed regardless of the price, he added.

In order for the concentrate market to become less squeezed, mines would need to produce more, or global smelting capacity would need to reduce, analysts said.

Cole said: “There is little sign that the market is bottoming.”

Though the price that smelters were paying had stabilised somewhat in recent weeks, “traders are still buying aggressively”, he added.

Read the full article here

News Room June 10, 2025 June 10, 2025
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