Copper smelters typically earn for concentrate processing. They receive a fee for smelting and refining the metal – the so-called TC/RC. But recently these fees have collapsed. In January they went negative and reached a record low. Factories were on the verge of losses.
Sulfuric acid came to the rescue. In 2.5 years it has risen in price by about 500%. Last year alone, this brought Chinese smelters about $1.5 billion in additional income.
Yunnan Copper, one of the industry’s largest players, earned 790 million yuan from acid sales. This is a quarter of the total gross profit, although revenue from acid accounted for only 1% of the total. The situation is absurd: the by-product is dragging down the business, and the main product is at a loss.
Analysts warn that such dependence is dangerous. The sulfuric acid market is volatile and is not related to the main activities of the plants. Prices can fall as quickly as they rose.
The demand for acid is now fueled not only by fertilizers. It is actively used in the production of batteries for electric vehicles and in nickel processing in Indonesia. The share of these sectors is still small, but they are growing rapidly and taking more and more product.
At the same time, China depends on imported sulfur by 40%. As soon as global prices went up, the domestic market reacted instantly. There were also supply disruptions. Zambia, for example, banned the export of acid to support its mining operations.
Despite the windfall profits, the factories themselves are cautious. Yunnan Copper and Daye Nonferrous are telling shareholders straight: acid prices are unpredictable. Therefore, during the last negotiations on contracts, the Chinese resisted and did not want to go into the negative on the main fees. They understand that if the price of acid falls tomorrow, the losses on TC/RC will become unsustainable.
Analysts expect acid prices to decline by 10–30% in the coming months. High prices are beginning to stifle demand, new projects are being launched, and Beijing has limited exports to conserve acid for its fertilizers.
If prices fall and smelting fees remain low, plants will have to cut capacity. Experts do not rule out that manufacturers will begin to shut down furnaces for lengthy repairs or reduce the load. The by-product will no longer be a lifesaver, and then the industry will face a serious shake-up.
Source: MINING.COM
Image: National Bureau of Statistics of China
