SMM Analysis: Copper Smelters Face Diverging Strategies of Production Cuts and Expansions

According to foreign media reports, several Chinese smelters announced plans this week to reduce their smelting capacity starting next year due to unfavorable spot and long-term TC conditions for copper concentrate. In fact, such news of production cuts is not new. The CSPT group has repeatedly called for joint production cuts among Chinese copper smelters, but the actual effect has primarily been limited to "passive production cuts" by individual smelters. In the first half of the year, several smelters implemented various measures to achieve "passive production cuts," such as stopping the purchase of spot copper concentrate below $50 TC, lowering the grade of copper concentrate feed, indefinitely extending maintenance periods, utilizing high-copper-content polymetallic raw materials, increasing the use of cold materials, and reducing the use of clean ores.

Besides the smelters reported by foreign media, SMM research indicates that large smelters in East China, North China, Northwest China, and South China are also concerned about future raw material supply and have considered production cuts. However, specifics on the timing and extent of these cuts are still under study or internal discussion, making it difficult to quantify the exact impact on copper production at the end of this year or next year.

While some smelters are considering production cuts, others are planning new projects and expansions. These include the expansion projects of Southwest Copper, Jinchuan Group, Guangxi Jinchuan, and Liaoning Yingkou Jianfa Shenghai, as well as new projects by Tongling Nonferrous, the Russian Nickel joint venture with a state-owned enterprise, and the new project by China Nonferrous Metals and Kaz Minerals. This has created a polarized situation among Chinese copper smelters: some are unwilling to accept significant smelting losses once their long-term contracts expire, becoming "laid-back" smelters. Others, driven by political mandates, are determined to complete their production tasks and remain aggressive in raw material procurement, becoming "aggressive" smelters.

SMM forecasts that from 2025 to 2027, the supply-demand balance for copper concentrate will see a growing supply gap. The procurement by "aggressive" smelters will create a crowding-out effect in the raw material market, reducing the raw material share for "laid-back" smelters. As a result, China may not necessarily see a reduction in copper cathode production. Instead, the more likely scenario is the clearing of excess capacity and mergers and acquisitions among smelters.