Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The copper smelting industry is under growing pressure as plants around the world struggle to compete with the scores of newer factories in China offering cheap production of the red metal.
Commodity trader Glencore last week announced a halt to operations at its Pasar smelter in the Philippines, citing “increasingly challenging market conditions” as fees that smelters charge to process copper fell to an all-time low.
Global copper smelters are struggling to compete with rivals in China, which have rapidly built out their fleet of the facilities and control about half of copper smelting capacity worldwide, according to RBC analysts.
Copper is needed for electric cars, batteries, power cables and various other industrial parts that are crucial for the switch to a net zero economy.
The industry is also facing uncertainty because of the threat of tariffs after US President Donald Trump ordered a probe into copper imports.
The investigation into copper dumping could allow the administration to impose measures including tariffs or quotas.
Traders warned that Pasar may be the first of a string of smelters outside China that are forced to shut down because of depressed fees caused by the capacity oversupply.
Fees that smelters charge to turn copper ore into the red metal fell to an all-time low in late February, and have been consistently negative since December. It means smelters are in effect paying to process the ore.
China’s Tongling Nonferrous Metals Group is reportedly planning to open two more copper smelters this year that could worsen the oversupply.
Iván Arriagada, chief executive of Chilean copper miner Antofagasta, told the Financial Times in February that he expected conditions to remain as they were “for some time”. Some would “look at ways of reducing . . . the utilisation of their facilities,” he said.
One trader said tough conditions were likely to mean “more ex-China closures”, in an echo of what has happened in the nickel market where western companies have struggled to compete.
“Smelter margins are being squeezed,” said Duncan Hobbs, an analyst at trader Concord Resources. “These are really tough times.”
“They [fees] are the lowest they’ve been in living memory,” added Albert Mackenzie from price reporting agency Fastmarkets.
Although the record low spot market fees have hit margins, many smelters get more of their revenues from long-term contracts for copper ore.
Those contracts are agreed around a benchmark price, which is expected to be a little over $20 per tonne this year compared with $80 last year.
Smelters also make money from the byproducts of processing copper, which include sulphuric acid and other metals contained in the ore, such as gold. Gold has soared to record highs this year.
In addition, many companies with smelters own copper mining or production operations, and need the facility, even if it does not make money on a standalone basis.
Analysts said closing a smelter, which takes a long time to bring back online, would be a last resort.
Given how long prices have remained low, if it was possible for smelters to quickly shut down and recoup money, “they would have by now”, said RBC Capital Markets analyst Ben Davis.
