Recent reports from the China Nonferrous Metals Industry Association show that the country’s processing capacity has grown significantly in the recent past, surpassing its mine capacity greatly. Data from the Shanghai Metal Market shows that between Q1-Q3, China’s refined output rose by 12%, driven by expansion in smelter capacity.
This has led to excessive competition between firms in the sector and comes as smelters in the West slash their operating rates, with some even closing their plants.
While an increase in processing capacity is good, refining and spot treatment rates have been decreasing over the last few months. For smelters focused on generating revenues, this is a huge blow.
Benchmark agreements, which usually involve larger quantities over extended timeframes, have also fallen to zero. During mid-year discussions, Chinese smelters reached a deal with Antofagasta to handle its concentrates without any processing fees.
Zinc treatment charges, which dipped into negative territory at the end of 2024, have since recovered to around $87 per metric ton. Lead treatment fees have also collapsed completely, hitting a new low of -$115 per ton for imported concentrates.
The overall pattern is consistent; Chinese smelters continue driving rates lower as they struggle to survive amid an increasingly severe shortage of raw materials. To remedy this, the association proposed that capacity caps be imposed for zinc, lead, and copper smelters. The proposal echoes China’s experience in aluminum, where strict production limits have successfully curbed output growth.
Currently, aluminum smelters are running at over 96% capacity, just below the government’s 45-million-ton cap, even as prices rise and profit margins widen. From this, it’s clear that a hard cap can restrain expansion.
By contrast, utilization in China’s copper sector stands at just 84%, with smaller plants operating at barely 60%, while secondary lead smelters have seen rates plunge to 22% amid weak demand. The uneven performance across these unconstrained sectors highlights how binding caps can enforce discipline and stabilize markets more effectively than price signals alone.
But how long will it take for the proposal to become policy? The timeline is uncertain, and much will depend on how quickly authorities can turn discussion into regulation and determine where the caps should sit. China’s aluminum sector shows that such measures can take years, seeing as the current ceiling was set in 2017 but has only recently started to restrain growth.
This time, however, the country may need to move faster, particularly in copper, where smelters are heading into next year’s benchmark negotiations facing weaker treatment terms and shrinking margins.
As the smelters in China seek ways to shore up their earnings, exploration companies like Torr Metals Inc. (TSX.V: TMET) will continue to uncover more resource-rich zones that could start producing copper for processing and eventual sale.
NOTE TO INVESTORS: The latest news and updates relating to Torr Metals Inc. (TSX.V: TMET) are available in the company’s newsroom at https://ibn.fm/TMET
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