ROI-Copper soars but smelters can't bank on it to survive: Andy Home

Antofagasta

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The opinions expressed here are those of the author, a columnist for Reuters
By Andy Home

    LONDON, June 26 (Reuters) - While the copper price CMCU3 hovers near all-time highs, the metal's value to smelters has collapsed after an unprecedented implosion in processing fees. 
The companies that convert mined concentrate into refined metal are now relying on what comes with the copper for their financial survival. 
By-products of the conversion process such as gold, silver and sulfuric acid are now just as important to a typical smelter's bottom line as copper. 
This curious state of affairs has been caused by China having expanded smelting capacity far faster than the world's miners can deliver raw materials. 
The disconnect isn't going away any time soon. 
Mine production is physically constrained and despite talk of Chinese smelter cutbacks, the country's refined copper production continues to rise.
This has profound implications for both the copper concentrates market and the global production landscape. 

BEYOND ZERO
Annual "benchmark" copper treatment and refining charges (TC/RCs) fell from $80 per metric ton and 8 cents per lb in 2024 to $21.25 and 2.125 cents in 2025. This year they are zero.
Spot treatment charges have been negative for many months, meaning smelters are effectively paying miners for the right to process their copper concentrate. 
The headline TC/RCs in these deals have become almost meaningless. More important is the pricing of the precious metals in the concentrates and the sulfur that can be captured for conversion into acid. 
Higher gold XAU= and silver XAG= prices have provided significant offset to the loss of what was a core smelter revenue stream. Sulfuric acid has helped even more, thanks to the interruption to Gulf supplies due to the Iran war's closure of the Strait of Hormuz. 
Indeed, some Chinese copper smelters are processing more pyrite, so-called "fool's gold", just for its higher sulfur content. 
Analysts at consultancy CRU estimate that processing fees accounted for 39% of total smelter income in 2018. But last year, the biggest revenue generators were "free metal" and by-product credits, largely for sulfur, at 50-53% and 25-27% respectively. 
"Free metal" is the difference between the payable content of the raw material and the smelter's actual recovery rate, across copper and other metals. 

END OF THE BENCHMARK?
What's remarkable about this upending of the smelter business is that it's played out in such a short time. 
That reflects the speed and scale of China's build-out of processing capacity. 
The country's refined copper output surged by 8% year-on-year to 14.72 million tons in 2025. Global mine production, by contrast, increased by just 1%, according to the International Copper Study Group. 
The China Smelters Purchase Team (CSPT), a grouping of the country's largest producers, agreed in November to reduce output by 10% this year to halt the collapse in processing fees. 
But actual production grew by another 7.4% year-on-year between January and April 2026, according to the National Bureau of Statistics.
The speed of change in the copper concentrates market is forcing participants to re-think the market's reliance on annual "benchmark" deals to determine price. 
Chilean producer Antofagasta ANTO.L is proposing a shift to spot index pricing in its mid-year negotiations with Chinese smelters, as reported by local data provider Shanghai Metal Market. 
The CSPT, which has just added new members to enhance its negotiating power, is likely to baulk, but without meaningful cuts to Chinese production, the divergence between annual "benchmark" and spot reality will yawn ever wider. 

SURVIVAL OF THE FITTEST
The key question is whether this is a sustainable smelter finance model over the medium term. 
For those with modern technology, capable of high precious metals recovery rates, and with sulfuric acid off-take arrangements, it probably is. 
"For them, the (TC/RCs) collapse has been painful on paper but manageable in practice," according to CRU. 
   However, the consultancy warns that "the picture is considerably bleaker for smelters with older infrastructure, higher fixed base costs or geographic disadvantages in acid placement". 
These plants are more dependent on processing fees precisely because of their disadvantages relative to newer players. 
And many of them are outside China, posing another threat to a beleaguered part of the Western copper supply chain. 
Glencore GLEN.L has already placed its Philippine smelter on care and maintenance and only committed to continue operations at its Australian processing units after receiving an A$600 million ($395 million) bailout from federal and state governments. 
China, on the other hand, accounted for around half of global refined copper production in 2025, up from 15% in 2005, with more gains likely this year.
Chinese smelters seem to accept they are in a battle where only the fittest will survive. 
The West's problem is that it is likely to be a major casualty of China's ferocious competition for raw material and revenue in a structurally under-supplied concentrates market. 
     
  (The opinions expressed here are those of Andy Home, a columnist for Reuters.)       
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The collapse in copper smelting processing fees https://tmsnrt.rs/3R1FfHK
 (Writing by Andy Home;
Editing by Marguerita Choy)
 ((andy.home@thomsonreuters.com, 44-207-542-4412 and on Twitter https://twitter.com/AndyHomeMetals))