The profit margins of Chinese copper smelters have recently improved slightly due to easing cost pressures, but profitability remains insufficient to stimulate production growth. Although the spot processing fees for converting copper concentrate into refined copper remain in negative territory, they have rebounded modestly over the past six weeks. This change is primarily due to an unexpected increase in copper ore supply from Indonesia—Freeport-McMoRan (FCX) was forced to accelerate sales of concentrate from its Grasberg copper-gold mine through short-term export permits after an accident halted production at an Indonesian smelter. Approximately 100,000 tons of the material are flowing into China, which accounts for over half of the world’s smelting capacity.
Processing fees contribute to about one-third of smelters’ revenue, while the price of sulfuric acid, a byproduct, has climbed to a three-year high, further improving factory profits. Li Chengbin, an analyst at Mysteel Global, noted that smelters may now be operating at marginal profitability. China’s refined copper output exceeded 1.3 million tons per month for the first time in June, hitting a record high. However, this production surge is unlikely to last. On one hand, Freeport’s additional ore supply is temporary, as its export permits expire in mid-September. On the other hand, amid government efforts to reduce overcapacity, smelters still face structural challenges such as thin profit margins and shortages of concentrate supply. Most industry insiders expect production to decline as the traditional maintenance season approaches in September and October.
The global copper market is currently grappling with a supply-demand imbalance. Mine development has failed to keep pace with the rapid expansion of smelting capacity in China and elsewhere, leading to persistent shortages of copper concentrate. Traders’ stockpiling activities have further tightened supply, forcing smelters to accept harsher processing terms. Reports indicate that recent Grasberg copper ore offers to Chinese buyers included processing fees as low as -$20 to -$30 per ton.
Charles Cooper, head of copper research at Wood Mackenzie, noted that newly commissioned smelting capacity could exert long-term downward pressure on processing fees. Spot copper concentrate treatment charges may not have bottomed out yet.
