The Copper Conundrum: China's Response to a Global Shortage

 

2024-03-13:  On Wednesday, China's premier copper smelters reached a consensus to collectively reduce output at certain plants that are not turning a profit. This decision marks a significant unified move to tackle the issue of limited raw material availability. The exact extent of the production cuts was not disclosed, as it is up to each company to determine their individual reductions. This decision, made during a confidential meeting in Beijing, comes at a time when the fees smelters receive for processing copper concentrate have fallen to their lowest in ten years. This drop is a result of disruptions in mining operations and an increase in smelting capacity. Major players in the industry, such as Jiangxi Copper, Tongling Nonferrous Metals, Jinchuan Group, and China Copper, have yet to comment on the matter.

 

The expansion of smelting facilities in recent years was in anticipation of the demand surge from sectors like electric vehicles and renewable energy. However, the availability of copper concentrate has diminished, especially following the closure of key mines like First Quantum's Cobre Panama. The spot treatment charges (TCs) in China have seen a dramatic 76% decline over two months, reaching a mere $11.20 per tonne, the lowest since 2013, according to Fastmarkets' weekly index.

 

Analyst Brian Peng from consultancy CRU suggested that this collaborative decision to cut production could be a pivotal moment, potentially alleviating the current tightness in the market over the next few months. However, he also warned of the pressure that an additional 1.7 million tonnes of smelting capacity, set to come online outside of China in the latter half of the year, might place on supplies.  The smelters have also considered other strategies, such as increasing the use of copper blister, to decrease the need for concentrate. Although there were discussions about coordinated production cuts back in January, no concrete steps were taken at that time.

 

Data from Antaike indicates that China's refined copper output saw a 9.2% increase year-on-year, reaching 1.75 million tonnes in the first two months of the year. Meanwhile, imports of copper concentrate slightly rose by 0.6% to 4.66 million tonnes, according to customs data. The announcement of these production cuts led to a spike in Shanghai copper futures, reaching their highest point in 22 months on Wednesday.