Since the start of this year, the spot copper concentrate TC market has shown an unprecedentedly sharp downward trend. The SMM spot copper concentrate index fell all the way from -$45/dmt at the beginning of the year and was now approaching -$70/dmt, with both the speed and magnitude of the decline rarely seen in history. A negative TC means that when purchasing copper concentrates, smelters not only cannot obtain traditional processing income from miners, but instead need to pay fees to sellers. Based on the current TC of -$70/dmt, the actual cost that smelters need to pay sellers in the copper smelting process is equivalent to a TC of $70, or about $112 in TC+RC terms. This extreme price signal quickly triggered strong market concern over smelter profitability, and even raised worries about the sustainability of production in China’s copper smelting industry.
Although TCs had fallen to historic lows, China’s copper cathode production at smelters still remained at a high level, with current monthly production at about 1.2 million mt. This apparent phenomenon of “the more they lose, the more they produce” seemed on the surface to run counter to market logic, but in fact reflected the passive choices of smelters and the structural supporting factors under the current complex environment. Judging from historical experience, extreme TC conditions were not appearing for the first time. In every previous industry downturn, smelters usually relied on one or more of exchange-rate changes, rising sulphuric acid prices, and TCs themselves to barely maintain cash-flow balance. In the current cycle, the sharp rise in sulphuric acid prices was becoming the key variable supporting smelter survival.
At present, the ex-factory price of smelting acid sold by copper smelters in China generally remained between 800 yuan/mt and 1,600 yuan/mt, and the latest SMM copper smelting acid index reached 1,235.5 yuan/mt. As an important by-product of copper smelting, sulphuric acid price fluctuations have a significant impact on smelters’ overall earnings. Typically, for every dmt of copper concentrates smelted, a smelter can produce about 1 mt of sulphuric acid as a by-product. Based on the current sulphuric acid price of 1,235.5 yuan/mt, after deducting VAT (at a 13 tax rate) and converting into US dollars (with the exchange rate estimated at 6.9), each mt of sulphuric acid can contribute about $158 in revenue to a smelter, equivalent to an additional gain of $158 for each dmt of copper concentrates; further converted into TC+RC terms, this was about $99. It can thus be seen that the rise in sulphuric acid prices greatly offset the loss pressure caused by negative copper concentrate TCs, and some more efficient smelters could even still achieve marginal profitability. It was precisely the presence of sulphuric acid as a “stabilizer” that enabled smelters to maintain relatively high operating rates even under an extreme TC environment.
However, sulphuric acid’s support for smelting profits was not unlimited, and its own price trend was being influenced by more complex international geopolitical factors. The recent abrupt escalation in the Middle East brought enormous uncertainty to global sulphuric acid and sulphur supply chains. Since the US and Israel jointly launched military strikes against Iran on February 28, 2026, the Strait of Hormuz, the world’s most important energy shipping corridor, quickly fell into a severe transit crisis. Iran’s new supreme leader, Mojtaba Khamenei, announced immediately after taking office that he would continue blocking the strait as a strategic lever against the US-Israel alliance, and advised neighboring countries to shut down US military bases. The Islamic Revolutionary Guard Corps of Iran then explicitly declared that any vessels associated with the US or Israel were prohibited from passing through the Strait of Hormuz, warning that unauthorized passage would face serious consequences.
The Strait of Hormuz is a key corridor for global sulphur transportation. Statistics showed that before the war, more than 100 vessels passed through the strait on a daily average basis, but after the conflict broke out, traffic volume plunged by more than 90%, with extreme cases of no vessels passing throughout an entire day, and more than 3,000 ships were forced to remain stranded in nearby waters. This de facto blockade not only directly hit the crude oil market—Brent crude oil futures rose more than 50% within one month, breaking above $114 per barrel—but also dealt a severe blow to global sulphur and sulphuric acid supply chains. War risks drove shipping insurance costs up to more than 20% of cargo value, further pushing up logistics costs and plunging global sulphur supply into a logistics crisis.
Although Iran claimed that it allowed vessels from “non-hostile” countries to pass and required ships to obtain prior approval, actual traffic remained at an extremely low level, far from sufficient to meet global trade demand. Meanwhile, Yemen’s Houthi forces announced their entry into the conflict, and the Red Sea-Suez route also faced new security threats. With the Strait of Hormuz and the Red Sea, the two major maritime chokepoints, coming under pressure simultaneously, global energy and chemical raw material supply chains were facing a systemic test. As the main raw material for sulphuric acid production, disrupted sulphur supply directly drove both international and China sulphuric acid prices steadily higher. From the current situation, there were still no signs of easing in geopolitical conflict in the short term, meaning sulphuric acid prices still had room to rise further.
The continued rise in sulphuric acid prices will have a dual impact on China’s copper smelting industry. On the one hand, higher sulphuric acid earnings will continue to provide an important profit supplement for smelters, enabling them to maintain production at lower TC levels and even further depress spot copper concentrate TCs; on the other hand, such elevated sulphuric acid prices driven by geopolitical conflict also make smelters’ profitability highly dependent on external unstable factors, leaving the industry as a whole increasingly vulnerable in its risk resistance.
Notably, the extreme TC/RC environment had already begun to have a substantive impact on the global distribution of copper smelting capacity. Mitsubishi Materials of Japan recently announced that it plans to cease production operations at the Onahama copper smelter by the end of March 2027. The plant has crude refining capacity of 230,000 mt, and the main reason for the shutdown is the rapid deterioration of copper concentrates TC/RC caused by intensifying competition in the global copper smelting industry, which has kept the business outlook under pressure. This decision sends a clear signal: against the backdrop of TC/RC continuing to hit bottom and industry profits being highly dependent on by-products and the external environment, some smelting capacity with high costs or lacking integrated recovery capabilities is facing pressure to exit the market.
Overall, China’s copper smelting industry is currently at an extremely special period in the cycle. On the one hand, supported by the windfall from elevated sulphuric acid prices, smelters had temporarily withstood the impact of negative TC/RC, with production remaining high. On the other hand, sulphuric acid prices themselves are highly dependent on the geopolitical situation, and external variables such as a blockade of the Strait of Hormuz have created significant uncertainty over the sustainability of smelting profits. If tensions in the Middle East continue, sulphuric acid prices are expected to continue to rise, and TC will still have further downside room, while smelters’ tolerance for extreme TC may instead strengthen on a period basis. But if geopolitical tensions ease, the sulphur supply chain recovers, and sulphuric acid prices retreat from highs, smelters will face the risk of a “double hit” from TC and by-product income, and the industry may then usher in genuine capacity rationalization and deep adjustment.
Therefore, the apparent “resilience” of the copper smelting industry is in fact built on a fragile balance between geopolitics and the by-product market. For market participants, in addition to tracking the TC trend itself, it is even more necessary to closely monitor changes in sulphuric acid prices and the geopolitical factors behind them in order to make more accurate judgments on the sustainability of production and the profit outlook of the smelting industry.
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