The Hindu Business Line : China plans huge investments in copper smelting

AFTER its intervention in the rapidly expanding steel and aluminium businesses, the Chinese Government has now turned its attention to copper smelting, one more business that is showing significant expansion.

Last month-end, a meeting of several Chinese copper smelters and the Beijing Research Institute of Mining discussed the rapid development of the copper smelting industry and the way forward.

A recently-concluded study has suggested around three million tonnes (mt) of copper smelting capacity planned over the next five years. This represents one and a half times the output of last year (2 mt).

In order to prevent over-investment as happened in the aluminium industry, a variety of measures such as copper concentrate import licenses, central government approval for new smelting projects or bank lending restrictions to the sector are expected to be introduced.

There has been a surge in investment in copper smelting business following the huge increase in copper prices since early 2004, and the jump in copper concentrates treatment and refining charges (TC/RCs) since the second quarter last year. Increased demand for concentrates from smelters (in China and elsewhere) together with disruption in mine supplies (strikes etc) has had a negative impact on the TC/RC rates which dropped some 30 per cent since May this year.

According to Mr Jim Lennon of Macquarie Research Commodities, the fact is that China is hugely short of copper in all forms - the gap between domestic mine production and refined consumption continues to widen and it will have to continue to import growing amounts of copper in one form or the other - either concentrates, scrap, intermediate products or refined metal.

The import requirement for refined copper and alloys currently stands at 1.5 mt per annum. "Over the next three to four years, even with rapid investment in smelting, there appears little risk that China could become a net exporter of copper," Mr Lennon pointed out.

The situation is somewhat different to aluminium where China has been importing alumina and then exporting aluminium (a waste of power in Chinese Government eyes), the expert remarked.

Copper prices rose strongly last week as physical demand saw a sharp acceleration due to seasonal factors, and stocks declined as deliveries to Shanghai fell 40 per cent to only 20,000 tonnes last week, given a widening discount to LME prices.

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