It is like stopping a raging tide from collapsing [SMM analysis]

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On the morning of June 27, 2025, a leading Chinese smelter completed negotiations that will go down in the history of the copper industry: the mid-year negotiation results between Antofagasta and Chinese smelters finalised the TC/RC at $0.0/dmt and $0.0/lb.

Since the end of 2023, with the collapse of the copper concentrate supply and demand fundamentals, the spot TC in the copper concentrate market has also suffered an avalanche. The spot processing fee for copper concentrates fell to a historical low of -$40 midpoint, and the long-term contract level also fell to a new low in the history of the copper smelting industry.

Therefore, in the past three years when China's smelting capacity for smelting has been concentrated and put into operation, the mid-year and year-end negotiations between Chinese smelters and Antofagasta have been particularly difficult. Since the end of last month, Antofagasta has insisted on offering a -$15 quote to Chinese smelters in the first to third rounds of mid-year negotiations, refusing to make any concessions. Miners have taken advantage of the production resilience and reduced expectations for production cuts in Chinese smelters, refusing to make any concessions. Chinese smelters have risen to the challenge, and under the rational arguments of two leading smelters as the main negotiators, one of the leading smelters finally took the lead in reaching a $0 result with Antofagasta this morning without making any concessions on other terms, and other Chinese smelters participating in the negotiations followed suit. Previously, there were endless pessimistic market expectations, with bearish and production cut arguments echoing. Given the miners' multi-round insistence on a -$15 quote, the market generally expected Chinese smelters to have to compromise on negative numbers and be forced to open an era of negative long-term contracts. From the results, this negotiation was nothing short of turning the tide and saving the situation.

Additionally, since we just mentioned the reduction in expectations for production cuts in China's copper smelters, let's take a moment to deduce the future trend of copper market conditions.

1. Currently, the expectations for production disruptions at global copper smelters are polarizing. China's copper cathode production has repeatedly dispelled rumors of production cuts, with production rising steadily, demonstrating full resilience and vitality. In contrast, for copper smelters outside China, expectations for production cuts are only increasing. Glencore's Mount Isa copper smelter is unable to maintain operations due to "unprecedented smelting market conditions," high energy costs, labor costs, and raw material shortages, and is waiting for financial assistance from the Australian federal government and the Queensland government; India's Adani smelter, after multiple delays in commissioning, had its long-term contract cancelled and can only maintain low-load production using spot copper concentrates; According to official news from JX Advanced Metals Corporation, due to the decline in copper concentrate smelting profitability in recent years and the significant deterioration of current ore purchasing conditions, the group has begun to consider implementing production cut measures at operating smelters; the expectation for future production cuts at South Korea's Onsan smelter is strengthening; Glencore's PASAR copper smelter in the Philippines has now ceased production.
2. Due to the US's continuous siphoning of global copper cathode, the LME Cash contract's backwardation structure against the LME 3M contract has been deepening, especially evident since last week. The Spread between the Cash contract and the 3M contract, as well as the TOM-NEXT, have surged. This deepening and duration of the backwardation structure are expected to persist for a considerable period. To avoid losses from the SHFE/LME price ratio, multiple smelters with Processing Trade with Supplied Materials Manuals plan to export copper cathode sequentially. However, this is merely a drop in the ocean. The pace of destocking at the LME may far outpace the speed of copper cathode transfer to delivery warehouses in China, making it difficult to reverse the unfavorable price ratio. Regardless of the tariffs imposed on copper due to the Section 232 investigation results, the Contango structure exhibited by COMEX copper contracts will also lock in an excessive amount of spot copper cathode in the US market, allowing for the enjoyment of rollover gains from selling hedges. Therefore, it is unlikely that the US market's copper cathode will "replenish" global copper cathode inventories.
3. If the copper cathode inventories in the Chinese market continue to decline and exit the country, there is a possibility that a deep backwardation structure will emerge on the SHFE futures market during the traditional peak consumption season in Q3, and the price ratio may then be restored.

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