Copper price soars as Chinese smelters explore production cut measures

Copper spiked to an 11-month high after Chinese smelters pledged to explore measures to cope with a plunge in processing fees, including possible production cuts that could leave buyers under-supplied.

Prices soared as much as 3.5% after executives from at least 15 Chinese plants discussed steps including potential production cuts in Beijing on Wednesday. The rally sparked one of the busiest days for electronic trading in years on the London Metal Exchange, and brought a months-long spell of range-bound trading to an abrupt halt. 

Copper traded on Comex surged the most in 16 months, settling up 3.3% to $4.06 a pound.

Shares of copper miners also gained, with First Quantum Minerals Ltd. climbing 12%, Freeport-McMoran Inc. gaining more than 7%, and Antofagasta Plc and Glencore Plc adding about 5%.

“The timing of the next bull market in copper has been pulled forward due to a better demand outlook than we had previously envisioned,” Jefferies analysts including Christopher Lafemina said in a note. “Obviously there are still risks, and we are not raising our near-term copper price forecasts yet, but our current deck is increasingly conservative.”

Smelters in China, the world’s top refined metal producer and consumer, are facing a crisis after so-called treatment and refining charges — the amount they’re paid to convert concentrate into metal — collapsed. That’s prompted talk of possible output cuts at smelters, which are highly dependent on imported raw materials. 

Even so, no formal decisions or pledges were made at the meeting and any specific measures will be announced at a later date, according to people with knowledge of the matter. 

The plunge in spot processing fees has been driven by a slew of supply setbacks in the mining industry, including a governmental order to shut down a massive mine owned by First Quantum in Panama, and a sharp drop in production at Anglo American Plc. A major expansion in smelting capacity this year — primarily in China but also in India and Indonesia — has also led to increased competition for the dwindling cargoes of mined ore available in the spot market. 

However, there are broad doubts about whether Chinese smelters will push ahead with large-scale cuts — lending further support to copper prices — or whether they’ll seek to absorb the losses, banking that market conditions will improve. Concerns about demand are also creating headwinds for copper, with China’s long-running real estate crisis and elevated global interest rates hurting the outlook for use in construction and manufacturing. 

Other potential measures discussed at Wednesday’s meeting include delays to new projects and more reliance on copper scrap as a raw material instead of concentrate, said the people, who asked not to be identified as the talks are private. 

Copper rose 3.1% to settle at $8,927 a ton on the London Metal Exchange, after earlier hitting an intraday high of $8,950 a ton. Other base metals were mixed.