Copper’s just one of a number basic industries, from cement to steel and solar, that are laden with too much capacity relative to demand for firms to consistently turn a profit. It’s a feature of the Chinese economy that has baleful implications for domestic growth and international trade.
Deflation at the factory gate has persisted for 28 straight months. Steel has become a tariff target for the Trump administration, ultimately because China is swamping the world market with its surplus.
“The fight to end excessive competition and deflation is now a national priority across industries, highlighting for the first time the need to improve supply discipline,” Jefferies Financial Group said in a note last month.
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The copper industry tried and failed last year to impose its own supply discipline. Refined metal production still hit a record. Cutthroat competition among too many firms bidding for not enough ore saw the fees that smelters charge turn negative, crushing profitability. Fear of losing market share and local government incentives to keep output elevated were to blame.
So, now the central government is intervening, albeit with protections for copper given its central role in the energy transition and the development of China’s new economy.
For one, the government’s new rules apply only “in principle”, which suggests there’s room for maneuver baked into the policy, said Zhao Yongcheng, an analyst with Benchmark Mineral Intelligence in Beijing. And unlike aluminum or oil refining, there’s no blanket ceiling on capacity.
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China has to be cautious in slowing down expansion, said Zhao, because copper demand from some sectors like electric vehicles is still booming. The worldwide shortage of ore could also ease as higher prices attract investment.
Beijing’s order instead calls on smelters to find their own raw material. That could be mines abroad or domestic sources of ore. The goal is to lift copper mine resources in China by as much as 10% over the next three years.
The country’s mined copper output fell to 1.7 million tonnes in 2023 from 1.94 million tonnes in 2022, according to the US Geological Survey. To reverse that, China is betting on exploration, including in Tibet, where its biggest miner Zijin Mining Group aims to boost production from its Julong operation to 600,000 tonnes, from 115,000 tonnes in 2022.
Chart: Bloomberg
