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 more critical mineral threat 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 at risk. Glencore warned that the Mount Isa Copper Smelter in Australia was no longer financially viable after mining activities stopped this month. Australian authorities are also being urged to help save Nyrstar’s zinc, lead and aluminium smelters as well as Rio Tinto’s Tomago aluminum 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 more 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 priced their conversion fee exactly zero. It was at least not negative, unlike on the spot market where copper smelters actually paid miners for raw materials.

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 grew 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 million tonnes per year.

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 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. Existing operators and new potential plants are forced to compete for electricity with the tech sector, which is also power-hungry.

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 a strategic role to play, both in terms of connecting the supply chain between mine and product as well as their potential for by-products. The Chinese export controls on gallium have caused a spooky market. However, the semiconductor metal is recoverable from the aluminium melting process. Rio Tinto's Kennecott Copper Smelter in Utah now produces tellurium, a "hot" critical element. Nyrstar's Port Pirie smelter, located in Australia, could also produce antimony that is subject to Chinese export restrictions, but only if it can continue 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 the columnist, an author for.

(source: Reuters)