Split in 2026 Domestic and International Copper Cathode Long-Term Contract Negotiations: Can China's Copper Cathode Export Volume Continue Its Success?[SMM Analysis]

From mid-November, the battle over long-term contracts in the copper cathode foreign trade market began. Against the expectation that the US will continue to impose cumulative tariffs on copper cathode next year, major traditional smelting and exporting enterprises have significantly increased their premium quotes for registered brand products (conforming to COMEX delivery standards) to downstream processors or traders in different regions compared to the 2025 premiums. According to SMM, Codelco's long-term contract offer to China is $350 CIF, while its offers to South Korea and Taiwan, China are $330 CIF, and to Europe is $325 CIF. Aurubis's offer to Europe is $315 CIF. Mainland Chinese smelters' offers to Taiwan, China are $150 CIF. Although the long-term contract offers for EQ copper CIF Mainland China are somewhat chaotic, they have still increased significantly compared to this year.

In contrast, within Mainland China's domestic market, most smelters believe the 2026 domestic long-term contract premium range will be 200-250 yuan/ton delivered, an increase of about 100 yuan/ton from 2025. There is a huge divergence in the logic behind long-term contracts in the domestic and foreign trade markets. After converting to US dollars, China's domestic copper cathode long-term contract premium might only be a fraction of the international copper cathode market's long-term contract premiums, leading to a split in the 2026 long-term contract negotiation outcomes between domestic and foreign trade. Some market participants might wonder whether such a large arbitrage spread will stimulate Chinese smelters to increase copper cathode exports in 2026 to offset losses incurred in copper concentrate procurement.

My answer is no. The split between domestic and international copper cathode long-term contract markets is expected to persist, and 2026 copper cathode export volumes are not forecast to reach new highs. SMM estimates China's 2026 copper cathode exports at 500,000 metric tons, a decrease of 200,000 metric tons year-on-year.

1. The exceptionally high long-term contract premiums for specific brands in the foreign trade market account for their COMEX deliverable status. In other words, factors such as the LC copper price spread, ocean freight costs, and capital carrying costs during US land transport and logistics – all expected under the 2026 US tariff scenario – are already priced in. Copper cathode brands produced by Chinese smelters are not COMEX registered brands.

2. China has consistently been a net importer of copper cathode, and a supply gap still exists between its domestic production and import needs. Furthermore, Chinese copper cathode exports typically occur when the price ratio deteriorates significantly, opening the export arbitrage window, allowing smelters to avoid losses from the unfavorable price ratio by delivering to LME Asian warehouses.

3. China's copper cathode export levels are constrained by processing trade handbooks. While exporting copper cathode under smelters' processing trade handbooks allows for avoiding Value-Added Tax implications, only a limited number of smelters possess these handbooks. Therefore, only a few smelters have the decision-making power regarding copper cathode exports. According to General Administration of Customs data, the proportion of copper concentrate imports under processing trade arrangements has shown an increasing trend since 2020, corresponding with a year-on-year increase in China's copper cathode exports.

4. Given recent geopolitical instability and copper's status as a strategic material for China, the government's focus on copper cathode and potential export controls may become stricter.

5. Although the anticipated 2026 US tariffs are still expected to cause significant LC copper price spreads, the spreads and geographical mismatches might not be as pronounced next year as they were this year, based on the experience gained this year. Consequently, China's copper cathode export volume in 2026 is unlikely to replicate this year's success.