Copper smelters are facing both market and pricing crises

Reuters

20-06-2025

LONDON, June 20 (Reuters) - Copper smelters are now so desperate to find raw material they are paying miners for converting their concentrates into refined metal.
So-called treatment and refining charges (TCRC) should be a core revenue stream for copper smelters but spot charges have been negative since the start of the year and the mid-year negotiations have also kicked off with a negative number.
Low treatment charges feed copper's perennial bull narrative of too little mine supply but the current implosion in processing fees is as much about too much demand from too many new smelters.
The imbalance looks unsustainable, particularly if smelters accept a negative charge for the mid-year talks, which set the price for much higher volumes than the spot market.
But equally unsustainable is the copper industry's preference for pricing concentrates on an annual or semi-annual basis.
The good news for smelters is that spot treatment charges appear to have stopped falling. The bad news is that they have done no more than stabilise at $-45 per ton (TC) and -4.5 cents per lb (RC) level, according to Benchmark Mineral Intelligence.
Smelters which chose to lock in tonnages over the full year are partly insulated but this year's benchmark terms of $21.5 per ton were also the lowest in at least 20 years.
The mid-year negotiations look likely to generate a still lower outcome, although smelters will understandably balk at locking in a negative TCRC for contracts that could run into 2026.
Smelters have a couple of financial life-lines in the form of valuable by-products such as gold and silver. They also produce sulphuric acid, which has been rising sharply in price in China thanks to demand from the phosphate fertilizer industry.
But a copper smelter's main source of income should really be copper, which is clearly not the case right now.
It's not as if mines haven't been increasing production. Global output rose by 2.1% in 2023, 2.8% in 2024 and by another 1.2% in the first quarter of this year, according to the International Copper Study Group.
China's imports of copper concentrates have been running strong, hitting a new annual high of 28.2 million tons bulk weight last year and up 7.5% year-on-year in the first four months of 2025.
It's just that too much Chinese smelting capacity has been brought on line too quickly with newcomers chasing down available tonnage.
Scrap is an alternative feed for some but this is an increasingly competitive market and Chinese imports of copper recyclable material are no more than flat so far this year relative to 2024.
The rapid scale-up of Chinese processing capacity is clear to see in the country's production of refined metal. May output jumped by almost 14% year-on-year, according to the National Bureau of Statistics.
Local data provider Shanghai Metal Market estimates production so far this year has grown by 11% over 2024 levels.
A couple of Western smelters have already closed under the margin squeeze.
Glencore (GLEN.L), opens new tab placed its Pasar smelter in the Philippines on care and maintenance in February. Sinomine did the same with its Tsumeb plant in Namibia earlier this month.
But Chinese operators are doubling down in what appears to be a last-man-standing strategy.
The world's mines are not going to be able to lift collective output by the same margin as China has increased smelting capacity.
And the stresses in the raw materials supply chain are only going to get worse as new smelters fire up in Indonesia, ending the country's role as a key concentrates supplier to Asian smelters.
Something will have to give, particularly since Chinese copper demand is expected to cool due to a scaling-back of subsidies for the over-heated solar panel sector.
But with Chinese smelters not blinking, it could take some time before the current supply-demand imbalance is corrected through more capacity closures.
That means more stress also on the industry's price discovery process, which is still rooted in annual deals.
There has been some movement towards quarterly pricing and even spot pricing but largely in China.
This, as smelters are finding out, is a big problem if the annual price is a negative number. A negative mid-year deal sets an ominous precedent.
Markets such as iron ore have moved away from annual benchmarks which couldn't capture spot price volatility or sudden shifts in supply dynamics.
Even lithium, widely perceived as too bespoke a commodity for standardised futures trading, can now be hedged on a liquid CME contract.
It may be time for copper smelters to have a fundamental rethink about how they price their role in the processing chain. Because right now they're quite literally giving money away to the miners.
The opinions expressed here are those of the author, a columnist for Reuters