Andy Home: Copper prices are soaring, but smelters cannot rely on them to survive.

Copper's value for smelters is down after a massive drop in processing fees.

Companies that refine copper concentrate from mined concentrate are now dependent on the value of what is included in the?copper' for their survival.

Gold, silver, and sulfuric acids are by-products from the conversion process that are just as important as copper to the bottom line of a typical smelter.

The 'cause' of this strange situation is that China has expanded its smelting capacities far faster than world miners are able to?deliver raw materials.

The disconnect won't be going away anytime soon.

The Chinese refined copper production has continued to increase despite the talk of smelter cuts.

The copper concentrates industry and global production are both affected by this.

Beyond Zero

The "benchmark annual copper treatment and refinement charges" (TC/RCs), which were $80 per ton of copper and 8 cents a pound in 2024, fell to $21.25 per ton in 2025 and 2.125 cents. This year, they are zero.

Since many months, spot treatment charges are negative. This means that smelters pay miners to process copper concentrate.

These headline TC/RCs are now almost meaningless. The price of the precious metals in concentrates, and the sulfur that is captured to convert into acid are more important.

The loss of a key revenue stream for smelters has been offset by higher gold and silver prices. The interruption of Gulf supplies caused by the Iran War's closing of the Strait of Hormuz has helped sulfuric acid even more.

Some Chinese copper smelters process more pyrite (also known as "fools' gold") just because of its higher sulfur content.

According to analysts at the consultancy?CRU, processing fees made up 39% of the total income from smelters in 2018. Last year, "free metal" was the largest revenue generator, followed by by-product credits (mostly for sulfur), at 50-53%.

Free metal is the difference between what the smelter actually recovers and the amount of raw material that's payable. This applies to copper and other metals.

The End of the Benchmark?

This upending of smelter businesses is remarkable because it has happened in such a short period of time.

This reflects China's rapid expansion of its processing capacity.

In 2025, the country's refined output of copper increased by 8% on an annual basis to reach 14.72 million tonnes. According to the International Copper Study Group, global mine production increased only by 1%.

In November, the China Smelters Purchase Team - a grouping consisting of some of the largest producers in the country - agreed to cut production by 10% in order to stop the decline in processing fees.

According to the National Bureau of Statistics, between January 2026 and April 2026 actual production will grow by 7.4% annually.

Copper concentrates are changing at a rapid pace, forcing market participants to reconsider the reliance they place on "benchmarks" to set prices.

According to local data provider,?Shanghai Metal Market, Antofagasta Chilean Producer Antofagasta proposes a switch to spot index pricing during its mid-year negotiation with Chinese Smelters.

The CSPT is likely to balk. But without significant cuts in Chinese production, the gap between "annual benchmark" and actual spot prices will continue to widen.

SURVIVAL of the Fittest

The key question to ask is whether or not this is a model of smelter financing that can be sustained over the medium-term.

It is possible for those who have modern technology and are able to recover precious metals at high rates with the sulfuric acid.

According to CRU, "the collapse of the (TC/RCs), was painful on paper but manageable in reality." The consultancy warns, however, that "the situation is much worse for smelters who have older infrastructure or higher fixed costs, or geographical disadvantages when it comes to acid placement".

The disadvantages of these plants compared to the newer players makes them more dependent on processing charges.

Many of these are located outside of?China and pose a threat to the Western copper supply chains.

Glencore's Philippine smelter is already on care and Maintenance and it has only agreed to continue its operations in its Australian processing units once they receive a bailout of A$600,000,000 ($395,000,000) from the federal and state governments.

China will account for half of the global refined copper output in 2025. This is up from 15% in 2005. Further gains are likely to be made this year.

Chinese smelters appear to be accepting that they are fighting a battle where only the strongest will survive.

The West is in trouble because it will be "a major victim" of China's fierce competition for raw materials and revenue on a market that is structurally undersupplied with concentrates.

Andy Home is a columnist at. This column is great! Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.

(source: Reuters)