Chinese Copper Smelters Face Pressure Amid Overcapacity and Declining Profitability
Chinese copper smelters are under mounting pressure to scale back their rapid expansion, which is impacting profitability across the global industry. China, the world’s largest consumer of copper, is on course to produce about half of the world's refined copper this year after an aggressive wave of smelter construction aimed at securing essential supplies for the energy transition. Despite fierce competition for limited raw materials and shrinking margins, the capacity boom continues unabated.
According to Grant Sporre, head of metals and mining research at Bloomberg Intelligence, China’s excesses threaten the viability of copper refining operations beyond its borders. Facilities from Chile to Europe and India are at risk of being squeezed out if China does not curb its production. Calls within China to rein in production and slow down the formidable pipeline of new smelters have yet to gain traction. If unchecked, this relentless expansion could force production cutbacks elsewhere, consolidating even more global output in China—a concerning prospect for Western governments wary of China’s growing control over strategic minerals.
The issue will be a focal point at Asia’s largest copper industry gathering in Shanghai this week, where smelters will negotiate ore supply contracts that directly affect their margins. With global smelting capacity far outstripping mine production, miners have the upper hand in these discussions, pushing treatment and refining fees to new lows. Industry estimates suggest that the fees could drop to $40 per ton or lower for next year, down from $80 per ton in 2024. Such a drastic reduction could lead to significant financial losses, with the previous low recorded at $43 per ton in 2004, according to CRU Group, which tracks data going back to 1992.
While demand for copper is expected to surge in the coming decades—driven by renewables, electric vehicles, and grid infrastructure—copper smelters can be built far quicker and cheaper than new mines. This has resulted in an imbalance, further compounded by new plants in India, which is looking to reduce its dependence on imports, and Indonesia, where government plans to halt ore exports are tightening supplies throughout Asia.
China’s need for restraint is growing ever more evident. Earlier this year, spot treatment fees plunged to unprecedented levels below zero, yet efforts to curb production have so far had little effect. China's production of refined copper has risen more than 5% in 2024. Last month, the nation’s main metals association called for stronger government intervention to halt the “blind expansion,” echoing similar pleas across other overcapacity-stricken industries like steel, solar, and electric vehicles.
For now, China remains a net importer of copper and has yet to export large volumes, unlike its steel and aluminum sectors, which are increasingly running into protectionist barriers from trade partners worldwide. However, this may change if smelting capacity keeps growing unchecked.
Top executives from key Chinese smelters recently met to address the challenging market, with government representatives present. Discussions focused on adhering more strictly to production curtailment plans, although there is skepticism about whether these measures will be effective. Analysts suggest that Chinese producers are better positioned to withstand the market pressures due to their cost advantages. Most inefficient older plants have already been retired, leaving the industry dominated by state-owned smelters that are more resilient to financial stress.
“No one wants to cut first, but the ore tightness will be years-long and like running a marathon,” said Zhao Yongcheng, an analyst at Benchmark Mineral Intelligence. “Who can survive till the end will really be a test of everything from capital abundance to operational efficiency.”
