China copper smelters move closer to possible 10% production cut

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Chinese smelters, which produce over half the world’s supply of refined copper, moved a step closer to implementing a joint output cut after tightening ore supplies drove processing fees to near zero.

Thirteen major smelters proposed a reduction of 5% to 10% in planned output this year, according to people with knowledge of the matter, who asked not to be identified because the discussions are private. The proposal was made at the quarterly meeting of the Copper Smelters Purchasing Team, known as CSPT, in Shanghai on Thursday, the people said.

The proposal follows talks between smelters and the government earlier this month about possible production cuts and capacity controls, news of which helped send copper prices to an 11-month high on the London Metal Exchange. Smelters will now discuss the exact scope of individual cuts, said one of the people. Representatives from Jiangxi Copper Co. and Tongling Nonferrous Metals Group declined to comment.

Chinese smelters are at a critical juncture after so-called treatment and refining charges — the amount they are paid to convert ore concentrate into metal — collapsed to near zero levels on the spot market. The plunge has been driven by a slew of supply setbacks at global mines, coupled with relentless expansion in Chinese capacity that’s boosted competition.

BHP Group Ltd. sold cargoes of copper concentrates from its giant mine Escondida at treatment charges of as low as $3 a metric ton and refining charges of 0.3 cents a pound to at least one Chinese smelter in its latest offer, according to people familiar with the deals. That’s the lowest in at least a decade, one of the people said.

Doubts linger

Uncertainty surrounds whether the cuts will be fully implemented, said two of the people. Term fees for concentrate are still profitable, while provincial governments need to meet the country’s ambitious growth goals and are not keen on shrinking the contribution from local industries.

In a sign of the relentless growth of Chinese refined copper output, top smelter Jiangxi Copper said in an earnings release Wednesday that its production will rise 11% to 2.32 million tons this year, following a 14% increase in 2023. The target could be adjusted based on the market, while it flagged possible output cuts at some of its peers who rely more on the spot market.

At Thursday’s meeting, the smelters also left out the usual setting of so-called floor prices for treatment charges for the coming quarter, the people said, as the prices used to guide them in separate negotiations for concentrate supplies from miners are increasingly irrelevant after the plunge in spot fees.

Jiangxi Copper expects copper prices to rise in the second half once the Federal Reserve cuts interest rates. The market should remain in a tight balance this year, it said, as supply shrinks and consumption increases steadily, led by renewable energy demand.

Copper was up 0.3% at $8,873,50 a ton on the LME as of 3:28 p.m. local time. Prices hit $9,164.50 on March 18, the highest level since April last year.


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