Copper Prices Jump as Top Chinese Smelters Agree to Cut Output

In a bid to cope with a raw materials shortage and underperforming plants, top copper smelters in China collectively agreed to cut production in a Beijing meeting this week.

Sources with personal knowledge of the matter said that the volume of cutbacks will rely on each smelter’s individual assessments, as no specific rates have been imposed.

Following a statement from the smelters, copper futures trimmed their gains after surging 3.1 percent on Wednesday to cap 11-month high, as investors speculated on a decrease in global supply.

Smelters in China, the world’s leading refined copper producer and consumer, are facing a critical situation. The collapse of treatment and refining charges to single figures has prompted companies to convene discussions on how to manage production, considering their reliance on imported raw materials.

Notably, there has been a rapid decline in treatment and refining charges this month, with copper concentrate trading at levels over 90 percent lower in the spot market compared to six months ago.

This steep decline indicates significant pressure on margins or even losses for smelters, as they receive substantially lower compensation for their services.

In addition, satellite data from London shows that China’s smelters experienced an 8.3 percent decrease in activity this year compared to a 4.8 percent decline during the same period last year.

David Wilson, a senior commodity strategist at BNP Paribas, emphasized that while the plunge in fees has been driven significantly by the rapid expansion of copper smelting capacity not only in China but also in India and Indonesia.

“This has less to do with a lack of mine-supply growth, and more to do with an excess of smelting capacity,” explained Wilson in a statement to Bloomberg. “That overhang of smelting capacity isn’t something that’s going to be particularly helpful for the copper price.”

Many experts believe copper has a strong long-term outlook, but global recession concerns have until recently tempered short-term forecasts. However, the late 2023 closure of the Cobre Panama mine, which was a significant producer, has impacted short-term projections, with some market watchers now predicting a potential copper deficit by late 2024.

Copper is used largely for industrial purposes, but its role in the energy transition is beginning to add another layer of demand, particularly from sectors like power generation and electric vehicles. With ambitious climate goals driving renewable energy adoption, the need for copper in infrastructure development is expected to grow substantially.

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Securities Disclosure: I, Giann Liguid, hold no direct investment interest in any company mentioned in this article.