March production was broadly in line with expectations, increasing by 63,700 mt from February on a MoM basis to a record high.

Since the beginning of this year, the spot treatment charge market for copper concentrates has shown an unprecedented and severe downward trend. The SMM Copper Concentrate Spot Index has fallen from -45 USD/dmt at the start of the year to near -70 USD/dmt, with the speed and magnitude of the decline being historically rare. A negative treatment charge means that when smelters purchase copper concentrates, they not only fail to receive traditional processing income from miners but instead must pay the sellers. Based on the current TC of -70 USD/dmt, the actual cost smelters pay sellers in the copper smelting process is equivalent to a TC of 70 USD, or further converted to a TC+RC of approximately 112 USD. This extreme price signal has quickly drawn high market attention to smelter profitability and even sparked concerns about the sustainability of domestic copper smelting production. Despite treatment charges falling to historic lows, copper cathode production by Chinese smelters remains at high levels, currently around 1.2 million tons per month. This phenomenon of "producing more while losing more" appears, on the surface, to contradict market logic, but actually reflects smelters' passive choices and structural supporting factors in the current complex environment. Historically, extreme treatment charge scenarios are not unprecedented. In past industry downturns, smelters often relied on one or several factors—exchange rate fluctuations, rising sulfuric acid prices, or treatment charges themselves—to barely maintain cash flow balance. In the current cycle, the sharp rise in sulfuric acid prices has become a key variable supporting smelter survival. Currently, the ex-factory prices of smelter acid sold by domestic copper smelters generally range from 800 to 1,600 yuan per ton. The latest SMM Copper Smelting Acid Index stands at 1,235.5 yuan/ton. As a crucial byproduct of copper smelting, sulfuric acid price fluctuations significantly impact smelters' comprehensive earnings. Typically, smelters produce approximately one ton of sulfuric acid for every dry metric ton of copper concentrate processed. Based on the current sulfuric acid price of 1,235.5 yuan/ton, after deducting value-added tax (at a 13% rate) and converting to US dollars (using an exchange rate of 6.9), each ton of sulfuric acid can contribute about 158 USD in revenue for the smelter, equivalent to an additional 158 USD per dry metric ton of copper concentrate. If further converted to the TC+RC metric, this amounts to about 99 USD. Thus, the rise in sulfuric acid prices has significantly offset the loss pressure from negative copper concentrate treatment charges, with some more efficient smelters even achieving marginal profitability. It is precisely this "stabilizer" role of sulfuric acid that allows smelters to maintain high operating rates under extreme treatment charge conditions. However, the support of sulfuric acid for smelting profits is not unlimited, as its price trend is itself influenced by more complex international geopolitical factors. The recent sharp escalation of the Middle East situation has brought significant uncertainty to the global sulfuric acid and sulfur supply chain. Since the joint US-Israeli military strike against Iran on February 28, 2026, the Strait of Hormuz, the world's most critical energy transport route, has rapidly fallen into a severe transit crisis. After taking office, Iran's new Supreme Leader, Mojtaba Khamenei, immediately declared that the strait would remain closed as a strategic lever against the US-Israeli alliance and suggested that neighboring countries close US military bases. The Islamic Revolutionary Guard Corps subsequently explicitly announced a ban on any vessels associated with the US or Israel from passing through the Strait of Hormuz, warning of severe consequences for unauthorized passage. The Strait of Hormuz is a critical chokepoint for global sulfur transport. Statistics show that before the conflict, over 100 ships passed through the strait daily. However, after the conflict erupted, transit traffic plummeted by over 90%, with extreme cases of no ships passing for an entire day, leaving over 3,000 vessels stranded in nearby waters. This effective blockade has not only directly impacted the crude oil market—with Brent crude futures rising over 50% within a month to exceed 114 USD per barrel—but has also severely disrupted the global supply chain for sulfur and sulfuric acid. War risks have caused shipping insurance costs to soar to over 20% of the cargo value, further increasing logistics costs and plunging global sulfur supply into a logistical crisis. Although Iran claims to allow passage for vessels from "non-hostile" countries, requiring them to obtain prior permission, actual transit volumes remain extremely low, far below global trade demand. Simultaneously, the Houthi armed group in Yemen has announced its involvement, posing new security threats to the Red Sea-Suez route. The compounding pressure on the two major shipping chokepoints of the Strait of Hormuz and the Red Sea is posing a systemic challenge to the global supply chains for energy and chemical raw materials. As the primary raw material for sulfuric acid production, the disruption in sulfur supply directly drives international and domestic sulfuric acid prices progressively higher. Given the current situation, geopolitical conflicts show no signs of easing in the short term, implying further room for sulfuric acid price increases. The continued rise in sulfuric acid prices will have a dual impact on the domestic copper smelting industry. On the one hand, increased sulfuric acid revenue will continue to provide crucial profit supplementation for smelters, enabling them to maintain production even at lower TC levels and potentially further depressing spot copper concentrate treatment charges. On the other hand, this surge in sulfuric acid prices, driven by geopolitical conflict, also makes smelter profitability highly dependent on external unstable factors, rendering the industry's overall risk resilience increasingly fragile. Notably, the extreme treatment charge environment has begun to have a tangible impact on the global layout of copper smelting capacity. Mitsubishi Materials of Japan recently announced its plan to cease operations at its Onahama copper smelter by the end of March 2027. The smelter has a crude and refined capacity of 230,000 tons, and the main reason for the closure is precisely the intensified competition in the global copper smelting industry, leading to a sharp deterioration in copper concentrate TC/RC and persistent pressure on business prospects. This decision sends a clear signal: against the backdrop of continuously bottoming treatment charges and industry profits highly dependent on byproducts and external environments, some high-cost smelting capacity or those lacking comprehensive recovery capabilities are facing pressure to exit the market. In summary, China's copper smelting industry is currently at a highly unusual cyclical juncture. On one hand, smelters, benefiting from high sulfuric acid prices, have temporarily weathered the impact of negative treatment charges, maintaining high output. On the other hand, sulfuric acid prices themselves are heavily dependent on geopolitical situations, and external variables like the Strait of Hormuz blockade introduce significant uncertainty into the sustainability of smelting profits. If tensions in the Middle East persist, sulfuric acid prices may continue to rise, leaving room for TC to fall further, potentially enhancing smelters' tolerance for extreme treatment charges in phases. However, if geopolitical tensions ease, sulfur supply chains recover, and sulfuric acid prices retreat from their highs, smelters would face the risk of a "double blow" from both low treatment charges and reduced byproduct revenue, potentially heralding a genuine phase of capacity reduction and deep adjustment for the industry. Therefore, the current apparent "resilience" of the copper smelting industry is essentially built upon a fragile balance between geopolitical factors and the byproduct market. For market participants, besides monitoring TC trends, it is crucial to closely track changes in sulfuric acid prices and the underlying geopolitical factors to make more accurate judgments regarding the production sustainability and profitability prospects of the smelting industry.

SMM Analysis: In May 2025, blister copper RCs in south China were quoted at 600-800 yuan/mt, with an average of 700 yuan/mt, down 350 yuan/mt MoM. Blister copper RCs in north China were quoted at 650-850 yuan/mt, with an average of 750 yuan/mt, down 100 yuan/mt MoM...

[SMM Analysis: Limited Upside Potential for Copper Anode RCs Amidst Tight Supply, Short-Term Market Structure Unlikely to Change] In May 2025, domestic blister copper RCs in south China were quoted at 600-800 yuan/mt, with an average price of 700 yuan/mt, down 350 yuan/mt MoM. Domestic blister copper RCs in north China were quoted at 650-850 yuan/mt, with an average price of 750 yuan/mt, down 100 yuan/mt MoM...

Previously, the US implemented reciprocal tariffs, sparking market concerns that a potential disruption in trade chains could drag down economic growth and push up inflation. Risk assets were broadly sold off, and copper prices were not spared from the downturn. Subsequently, trade conflicts began to ease, and copper prices embarked on a path of recovery. However, it can be observed that SHFE copper faced significant resistance at the gap left by the sharp drop in early April, while support below was also strong, with futures prices fluctuating rangebound around the 78,000 yuan level. Why has SHFE copper been caught in a dilemma recently? Is there a possibility for futures prices to break out of the rangebound situation in the future? Uncertainty remains over the tariff grace period Recently, negotiations between the US and various countries have been underway. In particular, after the 90-day reciprocal tariffs between China and the US were reduced to 10%, the market briefly traded on the logic of easing tariff tensions. However, the progress of some negotiations has been slow. Recently, Trump's attitude shifted, and he again proposed imposing tariffs on the EU. The market is also concerned about the possibility of renewed trade frictions after the tariff grace period. The positive impact of the short-term tariff easing has largely been priced in, making it difficult to provide further support for market sentiment. In addition, to divert attention from domestic contradictions such as the massive scale of debt, it is difficult for the US to restore tariffs on other countries to pre-2024 levels, and concerns about the economic growth outlook cannot be easily allayed. Judging from the recently released US economic data, the impact of tariff disruptions has so far been limited. US inflation in April was lower than expected, and the monthly rate of retail sales rose by 0.1%, exceeding expectations. The Markit manufacturing and services PMIs for May also exceeded expectations. However, the issue of the US's high debt burden still persists, with a significant amount of US debt maturing in June. Recently, Trump's tax cut bill narrowly passed the House of Representatives, and the market continues to worry about the US's mounting debt. The impact of tariff increases on the economy also remains to be tracked. Mining-side processing fees remain at extremely low levels, and the supply side appears somewhat fragile Since last year, tight ore supply has been a major factor plaguing the copper market. However, except for the news in March this year that Tongling Nonferrous Metals Group would carry out production cuts and maintenance, the production of domestic smelters has largely not been constrained by tight ore supply and extremely low processing fees. Therefore, against the backdrop of steady to increasing production in the smelting sector, the issue of tight ore supply alone is unlikely to provide a substantial boost to copper prices. However, it cannot be overlooked that the current spot processing fees for domestic copper concentrates have fallen below -$40/dmt, and the annual and quarterly processing fees negotiated between domestic smelters and overseas miners are increasingly lower. Recently, the market has focused its attention on the mid-year negotiations between global copper mining giant Antofagasta and Chinese and Japanese smelters. Previously, sources revealed that due to tight copper concentrate supply, smelters may request a "zero-dollar" processing fee, or even a negative value, for the second half of 2025. If the rumors are true, the output of by-products such as sulphuric acid may not be sufficient to offset the losses, undoubtedly exacerbating the production pressure on domestic small and medium-sized smelters. Meanwhile, there have been more disruptions in overseas mining operations. Last Tuesday, Ivanhoe Mines announced that mining operations at its Kakula underground mine within the Kamoa-Kakula copper mining area in the Democratic Republic of Congo (DRC) had been temporarily suspended, primarily due to the impact of an earthquake. Its Phase I and II beneficiation plants continue to operate at low capacity using surface ore stockpiles, while operations at the Kamoa mine and Phase III beneficiation plant remain unaffected. Kamoa-Kakula is a world-class, large-scale, ultra-high-grade copper mine. The Phase I mine, with a capacity of 6 million mt/year, was constructed at Kakula, while Phase II utilizes existing facilities at the Kansoko mine to increase capacity to 12 million mt/year. In the evening of May 23, Zijin Mining, another major investor in the mine, also issued an announcement, stating that the earthquake is expected to adversely affect the achievement of the Kamoa-Kakula copper mine's annual planned production, with the specific extent of the impact requiring further assessment based on the investigation results. Overall, due to the faster expansion of global smelters, the copper ore supply tightness is relatively severe and is unlikely to ease significantly in the short term. Against the backdrop of strong bargaining power of miners, the copper concentrate TCs negotiated by smelters are becoming increasingly lower, with the possibility of approaching zero. In the early stage, smelters adjusted their operations through measures such as long-term contracts, supplementing with other raw materials, and offsetting profits with by-products such as sulphuric acid, maintaining overall stable production. Recently, during the concentrated maintenance period of the year, there are still few maintenance plans among domestic smelters, and there has been no significant production cut due to ore shortages. Going forward, attention should still be paid to the long-term contract levels of copper concentrate TCs negotiated between overseas miners and domestic smelters. Before the ore supply tightness can be transmitted to the smelting end, it will still be difficult to provide more upward momentum for copper prices. If smelters indeed undertake substantial production cuts, copper prices may experience a sharp increase. Social inventory of domestic copper cathode accumulates slightly, with expectations of weakening demand Recently, the performance of global copper visible inventories has been divergent. COMEX copper inventories have continued to rebound, rising from around 92,000 mt in early March to approximately 175,600 mt currently, reflecting the process of global copper flowing into the US amid expectations of a possible tariff hike on imported copper by the US. Correspondingly, LME copper inventories have been continuously pulling back, declining from around 260,000 mt in early March to approximately 164,700 mt currently, with a significant destocking amplitude. The current price spread between COMEX copper and LME copper remains at a relatively high level. Before the implementation of copper-related tariffs by the US, global copper will continue to flow into the US due to the existence of profits. Domestically, the traditional peak season of "Golden March, Silver April" has passed. Coupled with the rebound of copper prices from low levels, the downstream demand in the domestic copper market has weakened compared to the previous period, and the destocking of social inventories of copper cathode in China has halted. However, overall, the extent of inventory buildup has been very limited so far, and the inflow of domestic inventories has also been influenced by the outflow of exchange warrants and the inflow of inventories from bonded areas. From the downstream industry data released this month, the high-growth momentum of power grid investment continues, and the State Grid Corporation of China's annual record-high target is relatively certain. This aspect of demand will continue to support copper prices. According to data from the National Bureau of Statistics, automobile production continued to increase YoY, and industry prosperity persisted. However, in April, the production of refrigerators and air conditioners both pulled back, indicating a potential weakening in demand in this sector. Overall, during the moratorium period, global trade frictions have eased compared to the previous period, but uncertainties in negotiations still persist. Moreover, against the backdrop of deglobalization, market concerns about the economic outlook are difficult to completely dispel, and the suppression at the previous gap still exists. On the supply and demand side, concerns about tight ore supplies have lingered for a long time, and recent disruptions at the ore end have increased again, continuously consolidating the downward support for copper prices. Additionally, the siphon effect of the US has also made it difficult for copper inventories in other regions to accumulate significantly. However, the output of copper cathode remains stable, and there are expectations of a marginal weakening in demand. Therefore, a breakout from the current stalemate in SHFE copper prices may require more definitive changes to occur.

According to foreign media reports, global copper mining giant Antofagasta has initiated mid-year negotiations with smelters in China and Japan. Sources revealed that due to tight copper concentrate supply, smelters may request a "US$0" treatment charge (TC/RCs) for the second half of 2025. This unprecedented offer represents a 100% plunge from the 2024 benchmark price of US$80 per metric ton (mt) and could potentially turn negative. The sharp decline in copper concentrate TCs stems from the shutdown of First Quantum's Cobre Panama copper mine and a surge in China's smelting capacity, leading to a supply-demand imbalance. On May 16, the spot copper concentrate TC fell to a historic low of negative US$59.1/mt. Analysts believe that if the zero-TC scenario materializes, small and medium-sized smelters will face a survival crisis, while miners' bargaining power will further strengthen.