Strong profits from smelting acid strongly support copper smelting business [SMM Analysis]

Published: Jun 6, 2025 19:10

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[SMM Analysis: Strong Profitability of Smelting Acid Supports Copper Smelting Business] SMM believes that the backwardation structure of SHFE will weaken in the future market, and the premise of our following discussion is based on the existing tariff levels in the US.

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Since 2024, sulphuric acid prices at China's copper smelters have continued to rise, forming a sharp contrast with the trend of spot TC for copper concentrates.

Supply side, the undersupply pattern of copper concentrates (sulphide ore) has become increasingly evident. Chinese copper smelters have reduced utilization of sulphide ore, replacing it with more copper scrap, oxide ore, copper anode, and other raw materials to maintain copper cathode production, thereby causing some disruptions in smelting acid supply. Contrary to previous market expectations that China's smelter expansions would make smelting acid a burden,

Demand side, Southeast Asia's new energy industry development has significantly increased demand for sulphur-based acid, driving up sulphur prices and benefiting demand for smelting acid as a substitute. Meanwhile, China's previous strict export restrictions on phosphate fertilizer processing were relaxed after the spring ploughing season ended in late May, further stimulating fertilizer industry demand for smelting acid.

From 2021 to 2023, Chinese copper smelters experienced varying degrees of smelting acid inventory buildup, with some even paying disposal fees. Once considered a burden, smelting acid has now become a lifeline. A simple calculation: producing 1 mt of copper cathode generates about 4 mt of sulphuric acid. With current average delivery-to-factory prices of smelting acid in major provinces at 600-650 yuan/mt (using the lower bound), smelting acid production costs at 100 yuan/mt, a USD/CNY exchange rate of 7.2, and copper concentrate grade at 25%, the net profit from acid (4*(600-100)*25%/7.2/1.6) equals $43, offsetting 43 mt (metal content) of TC+RC. This largely compensates for spot TC's negative impact, explaining why Chinese smelters maintain high operating rates.

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Data Source Statement: Except for publicly available information, all other data are processed by SMM based on publicly available information, market communication, and relying on SMM‘s internal database model. They are for reference only and do not constitute decision-making recommendations.

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