China has seen fast growth in its copper smelting capacity in the last decade, with its primary smelting output doubling to 8.4Mt in 2022 from 4.2Mt in 2013. China will remain the global centre of primary smelters; however, its growth rate will slow. AME forecasts Chinese primary smelters' consumption of copper in concentrate to grow at a CAGR of 1.6% in the next five years, to reach 9,261kt in 2027. This is much lower than the CAGR of 4.8% seen in the past five years.
Slowdown Theme in China
China has largely completed its recent round of new
smelter constructions. It has stepped onto a plateau. Only one copper smelter
was brought online in China in 2022. It was Daye Nonferrous' 400ktpa Hongsheng
smelter.
In 2023, Jiangxi Copper's 65%-owned 180ktpa Guoxin smelter will be the
only one planned for a start-up. The smelter slow-downs stem from a combination
of recent low TC/RCs, a low self-sufficiency rate of copper concentrate, rising
costs and increased permitting and ESG standards, amid the cloud of Covid and broader
economic slowdowns.

Furthermore, increasing scrap availability would
stimulate feed substitution for primary smelters and encourage the development
of secondary smelters. Increasing environmental requirements potentially will
lead to a greater preference for scrap and recycled material to avoid energy-intensive
primary material. The expected copper concentrate shortage in the next decade would
also stimulate substitution and slow down the growth of primary copper smelting
capacity.
However, primary smelters will still dominate the market. We forecast
the share of secondary production in China to rise from the current level of
21% to 29% by the end of 2030. China's government has clearly set a target for
recycled copper usage to reach 4Mt and account for 35% of total production by
the end of 2025, up from 3.3Mtpa in the past three years.
Value-added
Theme in Indonesia and DRC
Outside China, primary smelters in Indonesia and the
DRC will have remarkable growth rates as policies, ranging from investment
incentives for metal refiners to bans on the export of unprocessed ores, will
be implemented in order to direct investment into higher value-added mineral
activities and away from the export of raw minerals.
Despite the governments' attempts to ban exports of
copper raw materials many times in recent years, insufficient smelting capacity
has forced the governments to reverse these decisions. DRC's ban has been
replaced with waivers that are issued on a case-by-case basis, which require
companies to submit applications. Indonesia has flagged possible restrictions
on the export of copper concentrate or ore as early as June 2023, following
bans on nickel ore export that came into effect at the start of 2020 and an
imminent ban on bauxite exports.
Although the implementation date of the outright
bans on raw copper remains unclear, domestic smelting and refining operations in
Indonesia and the DRC will be strengthened. AME forecasts Indonesia's
consumption of copper in concentrate to expand at a robust CAGR of 23.9% to
reach 810kt in 2027. During the same period, DRC will grow at a CAGR of 23.0%
to 737kt.

In Indonesia, Freeport-McMoRan is building a new
smelter in Gresik with a processing capacity of 1.7Mtpa of copper concentrate. It
is scheduled to start production in 2023. The new smelter is part of Freeport's
2018 agreement with the Indonesian government associated with the extension of
its mining rights from 2031 to 2041.
Under the agreement, Freeport committed to
constructing a new domestic smelter by December 2023 with a total processing
capacity of 2Mtpa. To meet the agreed new smelting capacity of 2Mtpa, Freeport
is also expanding the existing Gresik's processing capacity by 0.3Mtpa to
1.3Mtpa.
The construction of Amman's new smelter in West
Nusa Tenggara is also progressing and will be completed in 2024. This smelter
will have a processing capacity of 0.9Mtpa. It is a value-add boost for the
Batu Hijau mine.
In addition to new smelters developed by Freeport
and Amman, the Indonesian government is also considering building another new
copper smelter in the region of Papua. The government is pushing ahead with a
plan to allow Freeport to expand the copper concentrate output from its
Grasberg mine in Papua from 3Mtpa to 3.8-4Mtpa to supply the planned 400ktpa
smelter in the region.
In the DRC, a direct-to-blister flash smelter is under
construction at the Kamoa-Kakula copper complex as part of the Phase 3
expansion. The smelter will produce approximately 500ktpa of 99+% copper
blister or anode, with commissioning scheduled for 2025.
Green Theme
in Chile and India
Chile and India have also committed to building new primary smelters as
they continue to make efforts to meet higher environmental standards.
In June 2022, Codelco decided to permanently close its Ventanas smelter
due to ongoing environmental concerns. The decision followed an environmental
incident in which dozens of people showed signs of poisoning from sulphur
dioxide emissions. Codelco said that the smelter's outdated technology made it
harder to curb emissions, and it would be cheaper to build a new smelter.
The
Ventanas refinery remains open. AME estimates that the smelter closure will
impact the refinery's production by around 100kt in 2022 and 2023. Its refined output
is expected to return to a full capacity of 400ktpa by the mid-2020s.
After the Ventanas closure, Chile's Enami has presented a US$1bn
investment plan to build a new smelter in the Atacama region. Enami also aims
to double capacity at its Hernán Videla Lira unit in Paipote to 1.4Mtpa by 2026.
Enami expects modernisation will help eliminate environmental impacts.

In India, Vedanta is planning to develop a new copper smelter and is
reportedly scouting coastal locations. The plant is expected to cost INR100bn
(US$1.3bn) and consume approximately 518ktpa of copper in concentrate.
Vedanta's new smelter plan follows the closure of the 400ktpa Tuticorin
smelter in Tamil Nadu in 2018 on state government orders amid pollution
concerns. Multiple court challenges to restart production at Tuticorin have so
far proven fruitless. Tuticorin has been put up for sale.
Kutch Copper, a subsidiary of Adani Enterprises, is also pushing ahead
with a new copper smelter and refinery in Gujarat, in western India. The plant
will be developed in two phases, each with a production capacity of 500ktpa of
copper cathode. Phase one is planned to start production in 2024. Once
completed, the plant will help reduce the country's imports and make Kutch
Copper the largest producer of refined copper and in turn the largest consumer
of copper concentrate, overtaking Hindalco, currently the country's top
producer of refined copper.
To meet the rising demand for copper in concentrate, India is exploring
ways to secure supplies of critical metals such as copper and lithium by
acquiring overseas mines. It is reported that India has identified one copper
and two lithium mines in Argentina to either acquire or secure a long-term
lease over.
Global
Smelter Bottleneck
Despite remarkable growth outside China, global
smelting capacity is unlikely to keep pace with the increase in mine supply. We
forecast the copper concentrate market will be in surplus in the next two years
on the supply growth of 7.7% in 2023 and 4.7% in 2024 to 20,459kt outstripping
the demand growth of 1.8% in 2023 and 4.6% in 2024 to 20,011kt.
We expect the copper concentrate availability to tighten after 2024,
with deficit forecast out to 2030. New mined capacities in the copper pipeline,
even including uncommitted projects in the early stage of development, are
insufficient to meet fast-growing demand amid the global green transition.
At
existing operations, outputs are expected to decrease, mainly driven by
declining grades. Meanwhile, producers and developers face stricter ESG
standards and harder permitting and operating requirements set by governments
and communities, which have become a significant hurdle for new capacity
development. This will potentially deepen the longer-term mined supply
shortage.