China’s copper smelters pledged to control capacity as the industry responds to a tightening in the global concentrate market that’s led to processing fees falling to near nothing.
Executives from 19 smelters have agreed to re-arrange maintenance work, reduce runs and delay the startup of new projects, the China Nonferrous Metals Industry Association said in a statement, following a meeting in Beijing on Wednesday. The group stopped short of outright production cuts and the statement didn’t give details on the scope of the adjustments.
Smelters in China, the world’s largest refined copper producer and consumer, are at a critical juncture after so-called treatment and refining charges — the amount they are paid to convert concentrate into metal — collapsed to single figures. That prompted firms to meet to discuss how to manage production given their reliance on imported raw materials.
Copper futures fell in London after hitting the highest since April. The contracts surged 3.1% on Wednesday as investors bet on a drop in global supply.
“The market is tightening up anyway, with Chinese smelter maintenance set to peak in April and May,” after some plants brought forward repair work, said Fan Rui, analyst with Guoyuan Futures Co. “Without details on the production cuts, the impact on refined copper output is something that requires further observation.”
Read More: Traders pile into bullish copper options as output cuts loom
Copper was down 0.6% at $8,870.50 a ton as of 3:57 p.m. local time on the London Metal Exchange. Most metals moved lower, while tin rose 0.8%.
The plunge in spot processing fees has been driven by a slew of supply setbacks at global mines, including a government order to shut down a massive operation in Panama. At the same time, the relentless expansion in Chinese capacity has left individual smelters with less work to do.
The Chinese government will take steps to control the expansion, according to the association’s statement. It will limit new capacity, including setting a higher bar on the requirements for building smelters, the association said, without elaborating further.
It’s the first official mention of capacity curbs, which are in place for other industries like aluminum and oil refining. People familiar with the matter said last year that Beijing was discussing such plans and seeking industry opinions on how to rein in growth.
Copper prices have also been helped by the possible end to the Federal Reserve’s rate-hike cycle, with swaps traders expecting the central bank to pivot to monetary easing as early as June. The metal has also benefited from demand linked to the world’s energy transition, and the confluence of bullish factors has finally allowed prices to break free from a months-long spell of range-bound trading.
“The rally has come earlier than the market has expected, and it may still have legs,” Li Xuezhi, head of the Chaos Ternary Research Institute, said in a note.
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