Andy Home: Copper prices are soaring, but smelters cannot rely on them to survive.
Copper's value for smelters is at an all-time low, despite the price of the metal being near its highest level. This is due to the unprecedented collapse in processing fees.
Companies that refine copper concentrate from mined concentrate are now dependent on the value of what comes with it for their survival.
Gold, silver, and sulfuric acids are by-products from the conversion process that are just as important to a smelter’s bottom line.
China's smelting capacity has expanded far faster than the world's miner's ability 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 almost meaningless. The price of precious metals in concentrates, and the amount of sulfur that can be captured to convert into acid are more important.
The loss of a major 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 made sulfuric acid even more valuable.
Some Chinese copper smelters process more pyrite (also called "fools' gold") just because of its higher sulfur content.
CRU analysts estimate that 39% of the total income from smelters in 2018 was attributed to processing fees. Last year, "free metal" (also known as by-product credits) and sulfur were the two biggest revenue generators, with 50-53% of each and 25-27%, respectively.
Free metal is the difference in the amount of copper or other metals that can be recovered from the raw material compared to the actual recovery rate.
The End of the Benchmark?
This upending of the smelter industry has happened in a very 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 reduce 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.
Shanghai Metal Market, a local data provider, reported that Antofagasta Chilean Producer Antofagasta has proposed a change to spot index pricing during its mid-year discussions with Chinese Smelters.
The CSPT is likely to balk. But without significant cuts in Chinese production, the gap between "benchmarks" 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 (TC/RCs') collapse was painful on paper but manageable when it came to practice." The consultancy warns, however, that the "picture is much bleaker" for smelters who have older infrastructures, 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 the processing fees.
Many of these are located outside of China, which is another danger to the Western copper supply chains.
Glencore's Philippine smelter is already on care and Maintenance and it only committed to continuing operations at its Australian units after receiving 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. More 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 likely?be a significant casualty due to 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! Check out Open Interest, your new essential source for 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)
