Copper smelters to face tough time in 2025

Copper concentrate TCs have been at consistently low levels in 2024, remaining below $10 per tonne since March and hitting a record low of $(5) per tonne on June 21.

Smelter margins have been somewhat protected by far higher terms on an annual basis, however, with the copper concentrate benchmark for 2024 set at $80 per tonne. And with most smelters having agreed to most of their tonnages at that level, the aggregate being paid for concentrates has consistently been far above $10 per tonne, as has been the case throughout the year.

The expectation for 2025 is that supply tightness will cause the benchmark to tumble, with many market participants expecting a benchmark below $30 per tonne.

“Next year will be the harder part, with no benchmark tonnes agreed at $80 per tonne,” one miner source told Fastmarkets.

“The full impact of the low TCs has yet to affect smelters as 2024’s benchmark has been protecting them,” Concord’s head of research, Duncan Hobbs, said.

“It’s one thing to buy at low TCs with a benchmark of $80 per tonne, but another to when benchmark is in the $20s or $30s,” Hobbs added.

A second miner source told Fastmarkets: “Copper smelters have access to benchmark tonnes, which allows their profitability to be maintained through the year.”

“With the benchmark in the high $20s, smelters will struggle,” a third miner source said.

And another miner has concerns that a deal might be agreed for a long-term contract with a smelter that subsequently closes down because of the extreme financial challenges related to the TCs, it told Fastmarkets.

“[Smelters running out of money] is something that concerns us,” a fourth miner source said, acknowledging that some smelters could have to close.

Miners: issues created by excessive smelter capacity

Miners would be unlikely to deliberately kill off smelters, however, with the mining industry relying so heavily on smelting, the third miner said.

But a fifth miner told Fastmarkets the issues were being created by excessive smelter capacity and they lacked sympathy with the smelters’ dilemmas.

And the first miner said: “Why are [the smelters] making their problem my problem?”

There is a dual challenge for the smelters, however, not just the financial burden of securing concentrates, but also the ability to secure sufficient concentrates at any price.

Sources across the industry told Fastmarkets they expect to see a large deficit of concentrates, which would mean that, irrespective of costs, some smelters would end up with a lack of concentrates.

“There won’t be enough concentrates to feed the smelters to a full rate,” a trader source said.

And many market participants said the lack of concentrates would be more of a concern to the smelters than agreeing to too-aggressive TCs. For most smelters, having no concentrate to process would pose a far greater challenge than unfavorable TCs.

Smelters have a number of set costs, including salaries, debt repayments, energy bills, among others, and many of these could be hard to change, making it hard for smelters to just sit it out for a year while TCs are low, because to do so would be financially challenging.

“Shutting down has costs,” the first miner said. “And it is cheaper to run at a loss, up to a point.”

And smelters could lose market share, on both the concentrates buying side and the cathode selling side, which could mean potentially losing valuable employees – thereby disincentivizing them from closing temporarily.

“Turkeys don’t vote for Christmas and if these smelters shut they will lose people,” the first trader source said.

Other market participants, however, said there were some reasons to be optimistic on the smelter side.

One smelter source told Fastmarkets that disruption to smelting projects – including a fire at Freeport’s smelter in Indonesia and a fire at China Daye’s Yangxin copper smelter in Hubei province – would help loosen the market in the first few months of 2025.

Beyond this, some sources said that some new smelter projects were likely to delay ramp ups in 2025 with the market so tight.

“Some smelter projects will be delayed due to this tightness,” a second smelter source told Fastmarkets.

Other sources said smelters could push hard to increase their economic viability with their backs against the walls.

“Under pressure, smelters will work hard to make more cash and will push recovery rates for the free metal,” Hobbs said.

“Smelters are like cockroaches – they always find a way to survive,” another analyst said.

But Hobbs said the will to survive can only be pushed so far. 

“Smelters are pushing the envelope of what is possible,” he said.

Smelters will also have a cushion in their finances from a more positive year in 2024, meaning many will have full enough coffers to weather the storm, for 2025 at least.

Smelter support comes from numerous sources

Other market conditions could have an impact on the smelters’ ability to survive, not just TCs, sources said, highlighting the fact that favorable precious metal prices, improved acid payables and stronger premiums for refined metal have been supportive of the smelters in recent months.

And some smelters are more efficient than others, sources added, meaning they will be less affected by low TCs.

Beyond this, it appears some smelters have agreed multi-year deals at higher TCs and Fastmarkets has direct evidence of at least one smelter procuring concentrates at $80 per tonne on a multi-year basis, thereby garnering support from higher TCs for some of their concentrates in 2025.

A number of smelters are also supported by having integrated smelting and mining businesses, by by-product sales, by regional premiums and by energy prices and the use of recycled material – demonstrating that not all economic factors are directly comparable.

One factor that a number of sources said goes beyond the basic economic functionality of the smelting industry, was geopolitics and government support, which are both likely to play key roles in the copper industry in 2025 with smelters struggling for margin.

A miner source told Fastmarkets that at least one smelter had given assurances that it had government backing if the economic challenges became insurmountable.

“The market fundamentals are going through the window due to geopolitics,” the fourth miner source said, adding that it was becoming hard to predict how the market will move.

“The market is getting away from its fundamentals a lot, it’s not just about supply and demand,” the source added. 

And with copper increasingly seen as a crucial material in the energy transition, sources agreed that it is entirely likely that governments will move to protect the smelters if they have to.

For more detailed insights and comprehensive analysis, consider exploring Fastmarkets’ copper 10-year long-term forecast.