Andy Home: Metal smelting will be the next major mineral crisis for the West.

The impact of China’s export controls on rare earths has already caused global supply chains to reel, but a greater threat from critical minerals is imminent.

Western metal smelters face a crisis. China's rapid expansion in processing capacity is reducing margins for all metals.

Recently, copper smelters located in Namibia and Philippines were placed under care and maintenance because their processing fees had fallen.

There are more people at risk.

Glencore warned that the Mount Isa Copper Smelter in Australia was no longer financially viable after mining activities ceased this month.

Australian Government is also being urged to help save Nyrstar’s zinc and lead and Rio Tinto’s Tomago Aluminium Smelter.

China's share in global base metals melting has steadily increased, and it is now approaching the level of dominance which has allowed the country to weaponise the exports of critical minerals like tungsten and Bismuth.

MARKET IMPLOSION

Chinese smelters just signed a deal to supply copper concentrates at mid-year with Chilean miner Antofagasta, which sets their conversion fee exactly zero.

It was at least not negative like the spot market where miners were actually paid for copper by smelters.

This is an inversion of the historical price. Copper smelters make money on by-products like gold, silver, and sulphuric acids, but the main revenue stream is smelting charges and refining fees. Or, at least, they should.

In the fourth quarter last year, zinc smelter fees also went negative. The spot price has recovered to $55 a metric ton. This is still below the benchmark for this year of $80.

Imports of zinc concentrates from China are also booming. They increased by 5.1% in the period January-April. Arrivals have more than doubled in the first five month of 2025 to over 2.2 millions tons.

The problem isn't just a matter of limited mine supply. The low fees on the zinc and copper market also reflect an expansion of Chinese smelting capacities beyond what can be supplied by world mines.

This has led to a dramatic drop in the treatment costs and profitability of smelters.

RISE OF DOMINANCE

According to the World Bureau of Metal Statistics, China's share of global refine zinc production has risen from 33% in 2007, to almost 50% by 2024.

After years of rapid expansion, the country now produces 60% of primary aluminium in the world.

Semi-manufactured goods are a way to leak excess aluminium. Exports grew from 2 million tons in 2010 up to 6 million tons last year.

Even the Chinese authorities have been unable to keep up with this growth, and they've set a cap on capacity of 45 millions tons per annum.

It's a cold comfort to Western producers of aluminium, however, as Chinese operators are simply building more capacity in Indonesia.

Indonesia accounts for about half of the global nickel production, thanks to an investment boom by China in mines and processing capacities.

Macquarie Bank warns of overcapacity in every phase of the production chain due to the Sino-Indonesian surge.

As more Western smelters are squeezed by margins, China's already tight grip on the global supply of industrial metals will only get stronger.

Power Pressure

China's own smelters also feel the margin pressure, but because many of the largest players are vertically-integrated, losses made at the processing stage are offset by gains further down the production line.

The central government and the provinces also give a helping hand to plants that are losing money, which is a form of subsidy from the state that can tilt the playing field in favor of Western competitors.

Western counterparts also pay more for power. This is a major expense for all smelters, and especially for aluminium plants that produce the light metal by electrolysis.

Electricity is a scarce resource, and both the existing plants as well as any new ones must compete for it with the tech industry.

In order to reduce costs, the European Union is promoting faster grid access and power purchase agreements for energy-intensive industries.

Assets of Strategic Value

It remains to be determined whether the "Action Plan" of the EU for its aluminum and steel processing capacities works.

It is clear that Western policymakers are learning from China's recent exercise of its vital minerals muscle.

China's mining dominance is not the final stage of processing ore to metal, but the intermediate stages.

Rare earth elements and exotic metals are under almost total control. There is also a growing danger of a similar dominance of base metal supply chains that are much larger.

Western smelters have strategic value, both for their role as a key link in the supply chain, from mine to final product, and also their potential by-products.

The Chinese export controls on gallium have caused a market panic, but the metal can still be recovered by melting aluminium. Rio Tinto's Kennecott Copper Smelter in Utah now produces tellurium.

Nyrstar can produce antimony at its Port Pirie Smelter, Australia, which is also subject to Chinese Export Controls, but only as long as the plant continues to operate.

The future of the Australian smelter industry now lies with the Australian Government, who along with other Western countries must decide how much they are willing to pay in order to protect their smelters against the Chinese price crunch.

These are the opinions of a columnist who writes for.

(source: Reuters)