After a prolonged period of dormancy, the copper market has sprung to life, with London Metal Exchange (LME) copper prices surging by 3.1% on Wednesday, breaking free from its longstanding range. This upward momentum continued into Thursday morning, propelling copper to an eleven-month high of $8,976.50 per metric ton.
The catalyst behind this price breakout stems from China’s copper smelters agreeing to reduce output in response to a significantly constrained raw materials market. Spot treatment charges, which reflect the fees paid to smelters for converting mined concentrates into metal, have plummeted in recent weeks due to a mismatch between supply and demand.
As the world’s largest consumer of concentrates, China faces heightened pressure on smelter margins amidst this raw materials squeeze. The collective action taken by Chinese smelters has shifted market focus from weak global demand to the strained supply dynamics of copper.
While this development has raised awareness about the supply crunch, the extent to which it will impact refined metal supply remains uncertain. The drastic decline in spot treatment charges in China, reaching $11.20 per ton last week, signifies a severe shortage of concentrates in the spot market.
The closure of First Quantum’s Cobre Panama mine has further exacerbated China’s copper supply chain, creating a substantial gap in the market. While some Chinese producers are shielded by annual supply agreements at benchmark treatment charges, newer operators reliant on spot supply have been forced to chase dwindling tonnage at unsustainable prices.
In response to the crisis, China’s Nonferrous Metals Industry Association (CNIA) has advised copper smelters to adjust production schedules and curb output to address the supply challenges. This week, Chinese smelters reached a consensus to reduce production levels to safeguard the global copper smelting industry’s stability, as highlighted by state research company Antaike.
The coordinated efforts to mitigate the supply constraints underscore the industry’s proactive response to ensure the long-term viability of copper production amid evolving market conditions.