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 told Reuters that the amount of cutbacks will rely on each smelter’s individual assessments, as no specific rates or volumes have been imposed.

The news spurred copper prices upward, with the cash contract on the London Metal Exchange closing Friday (March 15) at US$8,790 per metric ton (MT) after beginning the week at the US$8,520 level.

The increase of just over 3 percent took prices for the base metal to heights not seen since last April.

China is the world's leading refined copper producer and consumer, and its smelters are facing a critical situation, with treatment and refining charges (TC/RCs) having reached single figures. TC/RCs are the fees miners pay smelters to convert copper concentrate to copper cathode, and they tend to fall when copper concentrate supply runs short.

That's because smelters reduce TC/RCs to be more competitive when less material is available. However, lowering TC/RCs places margin pressure on smelters and can even leave them in the red as they receive lower compensation.

David Wilson, senior commodity strategist at BNP Paribas (OTCQX:BNPQF,EPA:BNP), told Bloomberg the plunge in fees has been driven 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,” he said. “That overhang of smelting capacity isn’t something that’s going to be particularly helpful for the copper price.”

Until recently, global recession concerns have tempered experts' short-term forecasts for copper. However, the late 2023 closure of First Quantum Minerals' (TSX:FM,OTC Pink:FQVLF) 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.