Copper prices have hit record highs, but smelters face mounting strategic pressures

With copper concentrate supply tightening following the recent expansion of smelting capacity, there is broad consensus that low TC/RCs are likely to remain over the medium term. A structural increase in TC/RCs would require either a major boost in concentrate supply or a meaningful reduction in smelter capacity. Most new concentrate supply growth in the pipeline is linked to integrated or semi-integrated smelters, while custom concentrate supply is already declining - making a surge in freely available concentrate unlikely.

This leaves smelter cuts or closures as the main mechanism to balance the market. China's top smelters have agreed to cut production by over 10% in 2026, and the government has halted around 2 million tonnes of planned new smelting capacity to address the issue. However, these cuts are not enough to meaningfully balance the market. Moreover, China remains a net importer of refined copper, making large-scale smelter closures unlikely. While planned Chinese cuts may ease the most extreme pressure, they are unlikely to lift TC/RCs significantly, leaving custom smelters outside China particularly exposed to a prolonged low-TC/RC environment.

Some custom smelters outside China are partially shielded by their integration into broader copper upstream and downstream supply chains or by their proximity to major domestic demand centres. Aurubis in Germany, for example, combines custom smelting with a large downstream fabrication business for wire rod and other copper products, while also playing a key role in setting benchmark European copper premiums. This positioning enables it to partially offset pressure from weak TC/RCs through strong premiums on copper cathode and other products. Many copper smelters also sit within large, integrated groups spanning mining, smelting and trading, allowing them to better absorb periods of weak smelter margins through cathode premiums, mine revenues or commercial trading. Some custom smelters are also owned by companies which have stakes in mines, enabling them to source their own raw materials and run as partially integrated facilities. Furthermore, smelters which primarily serve strategic domestic industries, such as the power, construction or automotive sectors, are likely to benefit from policy support during downturns, given their importance to national industrial value chains.

In contrast, custom smelters that are net exporters of copper cathode are more exposed since, in addition to competing for high-quality concentrate, domestic demand is insufficient to absorb their output. As a result, they have less ability to differentiate themselves based on local premiums or domestic strategic importance, leaving them particularly vulnerable in low TC/RC environments.