China’s major copper smelters delivered strong first-half earnings, amid a global squeeze on feedstock supply that has battered overseas rivals.
Jiangxi Copper Co., the country’s largest refined copper producer, saw net income jump to about 4.17 billion yuan in its strongest result since 2011. Yunnan Copper Co. reported record high earnings of 1.32 billion yuan.
The global copper industry has been facing cut-throat competition with too many firms bidding for not enough ore, crushing profitability and forcing some to the brink of closing down. But Chinese smelters, especially those with their own mines, have remained resilient as their output hit a succession of records in the first half, when prices of the metal climbed about 13%.
“For those with their own mines, the gains from higher copper prices have been significant,” said Zhao Yongcheng, an analyst at Benchmark Mineral Intelligence Ltd. “At current levels, there’s still a healthy profit margin relative to mining costs. In the smelting segment, losses haven’t been widespread, and revenues from sulfuric acid and other byproducts remain strong.”
Still, the momentum started to show signs of easing with output retreating in July, as Beijing began efforts to tackle excess production and reduce supply gluts across a range of sectors.
Risks loom for the rest of the second half. Spot treatment charges — the fees smelters earn for processing ore into refined metal — remain deeply negative. In June, Chinese smelters agreed to set TCs at zero, a record low for term fees.
Chinese “smelter profits will inevitably come under pressure in the second half,” Zhao said. “But lucrative sulfuric acid sales have pulled their break-even TCs to close to zero. If plants are locked into a high proportion of long-term contracts, they can still ensure a degree of positive cash flow.”
With assistance from Martin Ritchie.
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