China’s copper output surges to record highs, but smelters face rising operational pressures

China's copper production is projected to reach unprecedented levels in the current year, continuing its upward trajectory. 

However, this growth is not without challenges, as the operational pressures on copper smelters within the country are intensifying, according to a Bloomberg report. 

The increased output is placing a strain on these facilities, potentially leading to operational bottlenecks, maintenance issues, and a need for further investment in capacity expansion. 

Despite these challenges, the overall outlook for Chinese copper production remains positive, driven by strong domestic demand and ongoing investments in the copper industry.

Continuous expansion copper indusrty

The industry has continued to expand its capacity despite a significant drop in processing fees, which are currently operating at a loss. 

This has led to government scrutiny and plans to restrict the development of new facilities. 

However, plants that have already been commissioned will not be affected by these restrictions, and this is expected to result in increased production both this year and the next.

The continued expansion of capacity despite unprofitable processing fees indicates a potential oversupply in the industry. 

This oversupply, coupled with falling fees, has created a challenging economic environment for existing players. 

The government's intervention, in the form of restrictions on new facilities, aims to address this oversupply and stabilize the market.

However, the exemption for already commissioned plants could lead to a short-term surge in production. 

This is because these plants will be incentivised to operate at full capacity to capitalise on the existing market conditions before any new restrictions take effect. 

Further oversupply of copper

This could further exacerbate the oversupply issue in the short term, potentially leading to even lower processing fees and increased financial pressure on industry players.

Mysteel Global conducted a survey of smelters and forecast that refined copper output in the world's biggest producer will grow by 4.9% to 12.4 million or 12.45 million tons in 2025. 

This is faster than the 3.1% growth recorded by Mysteel in 2024.

Spot treatment charges for smelting concentrate have dropped drastically, with companies now paying over $20 per ton to process the material. 

This marks the lowest point ever for margins, according to Metal Bulletin. 

This starkly contrasts with the situation in August 2023, when charges were nearly $90 per ton. 

Although term treatment charges (which encompass the majority of China's imports) remain positive, they are still below the breakeven point.

Despite the downturn in construction, copper consumption in China remains strong due to increased renewable energy use, which more than makes up for the demand lost by the construction sector. 

However, increasing copper production is not a wise decision if companies are losing money on their output.

Competition

The global constraints on concentrate supply have resulted in fierce competition. 

To maintain their local economies and market share, larger, government-owned companies are willing to increase production even if it means incurring losses.

Smelters are implementing operational solutions to lessen their losses. One common strategy is to substitute concentrate with more scrap copper. 

According to Mysteel analyst Li Chengbin, companies are also purchasing ore with a higher gold content or lowering the copper content of their output.

The downtime is expected to increase, with an estimated 3.2 million tons of capacity idled for approximately one month during the annual second-quarter maintenance. 

This is an increase from the 2.7 million tons idled during the same period last year.