China's new copper smelting projects to add pressure to tightening concentrate supply

China's upcoming copper smelting projects this year are set to exacerbate the already tight supply conditions in the copper concentrate market, significantly impacting copper treatment and refining charges, market sources said May 14.

There are at least two upcoming projects from copper smelters in 2024, which could create challenges for the industry as multiple players vie for limited copper concentrates that are smelted and refined into final products like cathode.

China-based Tongling Nonferrous Metals Group, or TNMG, has completed 23% of the construction of its 500,000 mt/year copper smelting project, the state-owned China Nonferrous Metals Journal said. The project is expected to be completed by the end of the year, sources said.

TNMG will have a total production capacity of more than 2 million mt/year after the new project comes on stream, according to local media reports.

The company produced 1.76 million mt of copper cathode in 2023, accounting for nearly 13.5% of the national total, TNMG said in its annual report.

Meanwhile, Jinchuan Group is also accelerating the construction of its new 700,000 mt/year project, China's Gansu Daily said earlier. The project is expected to come online in September, with about 75% of the construction completed as of early May, according to the report.

However, it remains uncertain whether these new projects will proceed as scheduled due to a shortage of copper concentrates, a situation caused by global mine disruptions.

More Chinese smelters are expected to carry out maintenance activities in May and June due to losses stemming from declining copper concentrate treatment charges, sources said.

Chinese smelters were seen buying more secondary materials, driven by the widening discount for blisters and anodes, with the spread traded at around Yuan 1,700-1,800/mt ($235/mt-$248/mt) to copper prices as of May 13, the sources added.

The increasing usage of secondary materials has filled the gap in the copper concentrate shortage to some extent, some sources said.

Major Chinese smelters may witness some profit from long-term contracts but would suffer losses if they purchased at spot prices, the sources added.

The second half of 2024 could be more challenging for copper concentrate supply as more smelting capacity is expected to come online in China, Indonesia and India, further tightening the concentrate market, analysts at S&P Global Commodity Insights said.

Copper concentrate treatment charges

A persistent decline in copper concentrate supply has been weighing on copper concentrate treatment charges since the fourth quarter of 2023.

Platts assessed CIF China clean copper concentrate TC/RC at minus 80 cents/mt and minus 0.08 cent/lb on May 14, down $52.20/mt and $5.22/lb, respectively, from the start of this year, Commodity Insights data showed.

The market is still assessing the news of up to 900,000 mt of copper concentrate exports from Grasberg in the second half of 2024.

Traders did not expect a large volume of Grasberg sales from the producer directly, as Freeport has concluded many term contracts with a volume option for 2024 shipments.

Chinese copper smelters with low long-term contract coverage have reduced production, and a smelter was preparing to resell June-July loading shipments on a change in production plan, market sources said.

China is one of the world's largest producers of copper -- a material seen as critical for energy transition efforts.