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.