Turning point emerges in the smelting acid market; sulfuric acid revenue may struggle to support high-load copper smelting. [SMM Analysis]

》View SMM Copper Prices, Data, and Market Analysis

》Subscribe to View SMM Historical Spot Metal Prices

Since early September, the price of 98% smelting acid in China has begun to decline from high levels, with smelters in East China and North China experiencing varying degrees of price reductions.

Smelters in these regions indicated that the decrease in acid prices is primarily due to weakening fertilizer demand. According to SMM, the sluggish fertilizer demand is mainly attributed to the following factors:

1. Since September, grain prices in China have started to fall, with purchase prices for major grain varieties nationwide reaching a turning point. An oversupply of grain crops has emerged, reducing farmers' willingness to plant and fertilize. Data from the National Food and Strategic Reserves Administration show that purchase prices for wheat, early indica rice, medium and late indica rice, japonica rice, corn, soybeans, and rapeseed have declined since September. Additionally, the Ministry of Agriculture and Rural Affairs has mandated a further 5%-10% reduction in fertilizer use by 2025 and is promoting the use of organic fertilizers.

2. Some fertilizer distributors are adopting a wait-and-see approach, leading to slow progress in autumn fertilizer stocking. Distributors in East and North China are characterized by high inventory and low turnover. Typically, the autumn "Golden September and Silver October" period is a peak season for fertilizer use. However, this year, downstream distributors are generally cautious, with stocking activities slower than in previous years and weak sentiment in fertilizer procurement and sales.

3. Industrial demand remains sluggish. The operating rate of industrial compound fertilizer manufacturers in East China is below 50%, resulting in insufficient demand for fertilizer raw materials. Moreover, weak demand in the phosphate fertilizer sector has led to declining operating rates for monoammonium phosphate and diammonium phosphate manufacturers, naturally reducing sulfuric acid procurement. Demand from other downstream sectors of sulfuric acid, such as titanium dioxide and caprolactam, has also failed to improve.

The decline in acid prices has a more profound impact on the copper smelting industry. This year, despite three major pressures—a sharp drop in TC for copper concentrate, high raw material costs, prolonged unfavorable domestic-to-international price ratios, and increased capital occupation costs for raw material procurement—copper smelters consistently increased electrolytic copper production from January to August. This was largely supported by sulfuric acid revenue, as producing one ton of electrolytic copper simultaneously yields 3-4 tons of smelting acid. The revenue from sulfuric acid essentially offset the negative effects of the TC plunge. However, it is foreseeable that smelting acid prices in the fourth quarter may struggle to strongly support copper smelters' production activities. Smelters will face multiple challenges: spot TC remaining persistently between -$40 to -$50, high raw material costs, declining revenue from by-product sulfuric acid, expected reduced production of waste-derived electrolytic copper due to Policy Document 770, and maintenance activities at 10 smelters. These factors are likely to collectively lead to a deterioration in copper smelters' operating rates.