China’s copper smelters could be at a turning point, as a persistent shortage of ore forces them to trim production from record levels – just as the government ramps up its campaign against overcapacity across industries.
Research firm Shanghai Metals Market (SMM) projects output this month at 1.168 million tonnes, 0.5 per cent less than its peak in July, according to its monthly survey of smelters. A further drop is forecast for September.
As capacity has expanded, Chinese production has hit a succession of record highs in recent months, defying tight feedstock markets and cratering profitability. But that resilience could now be reaching its limits. It also coincides with greater urgency among policymakers to fix the ruinous competition and overproduction driving deflationary pressures in the economy.
While still deeply in the red, the spot fees charged by plants to treat copper concentrate have turned higher over the past month, indicating that smelters may have begun to better align their capacity with the availability of ore.
Some overseas rivals, which lack the state backing enjoyed by many Chinese operators, have already begun to curtail production. A similar move in China would be highly consequential for the market, as its accounts for over half the world’s refined metal. Official output figures for July are due for release by the statistics bureau on August 18.
