Guoxin Securities: The processing fee benchmark for long orders of copper concentrates was reduced to zero, prompting the smelting industry to “reverse internal circulation”

The Zhitong Finance App learned that Guoxin Securities released a research report saying that around December 19, Chilean mining company Antofagasta reached an agreement with a leading domestic copper smelter to set the 2026 copper concentrate processing and refining cost benchmark at 0 US dollars/ton and 0 cents/lb, respectively, lower than 21.25 US dollars/ton and 2.125 cents/lb in 2025. Processing fees for long orders have been reduced to zero. Apart from the mismatch between copper ore and copper smelting supply and demand, it is also due to by-products and recovery rate returns at the highest level in history. China's copper smelters lead the world in process level and cost control, and the consumption of by-products is smooth, and their competitive advantage is prominent during the downturn in copper smelting; zero processing fees will drive the introduction of capacity control measures, and the industry pattern is expected to improve.

Guoxin Securities's main views are as follows:

The price of a long order is very important, and the ratio of long orders is just as important

On or around December 20, Chilean mining company Antofagasta reached an agreement with a leading domestic copper smelter to set the 2026 copper concentrate processing and refining costs (TC/RC) at 0 US dollars/ton and 0 cents/lb, respectively, lower than 21.25 US dollars/ton and 2.125 cents/lb in 2025. Negotiating long orders for copper concentrates this year was quite difficult. The Asian Copper Week at the end of November was not finalized. It wasn't decided until around December 19, about 2 weeks later than in previous years.

In the middle of this year, a domestic smelter signed a small-batch long order with Antofagasta at $0 per ton. After Indonesia's Grasberg copper and gold mine, the second-largest copper mine in the world, announced force majeure in late September, the market anticipated that the 2026 long order might fall into a negative range. In the end, talking about the $0 per ton benchmark, it was the result of a combination of factors.

The ratio of long orders is likely to decline. Since the second quarter of 2025, the spot processing fee for copper concentrate has been hovering around -40 US dollars/ton, while the annual processing fee for long orders is 21.25 US dollars/ton. Long orders have become an important factor in smelter profits. In previous years, when the supply of copper concentrate was sufficient, large-scale domestic smelters accounted for more than 90%. In 2025, the supply of copper concentrate was tight, and many large-scale smelters accounted for less than 80% of orders. Although the 2026 long order TC is not negative, the proportion of large smelters may fall further compared to 2025, weakening the profitability of smelters.

The special background of zero processing fees

The reason for talking about zero processing fees is not only because of the mismatch between supply and demand caused by many disruptions at the mine end and concentrated operation of smelters this year, but also because smelting revenue other than processing fees is at the highest level in history. In addition to processing fees, copper smelting has three main sources of profit:

The first is copper smelting recovery rate revenue. The industry practice is for copper mines to sell copper concentrate, which is priced at a 96.5% smelting recovery rate. The domestic smelting process level is high, and the actual smelting recovery rate is 98% or higher, so you can earn 1.5% of the copper price. Currently, the price of copper is at a record high. Assuming the price of 80,000 yuan/ton without VAT, the recovery rate revenue is 1,200 yuan/ton of copper.

Second, revenue from sulfuric acid by-products. Sulfide ore is used to produce 1 ton of crude copper, a by-product of 3.5 tons of sulfuric acid. The cost of acid production is generally around 150 yuan/ton. The price of sulfuric acid fluctuates greatly. It once reached 1,000 yuan/ton in mid-2022. At a low point, it was necessary to ship at a loss, such as in the special situation of 2020H1. The price of sulfuric acid has skyrocketed since this year. Currently, the price of smelted acid in East China is close to 1,000 yuan/ton, which is near the highest level in history. The approximate estimate of sulfuric acid revenue is 2,500 yuan/ton copper. It should be noted that the price of sulfuric acid fluctuates greatly, and the current high price cannot be used as a basic assumption.

Third, precious metals recovery rate revenue. Precious metals such as gold and silver concentrated in copper ores are already priced according to the 90% smelting recovery rate. If the recovery rate of the smelter is higher than this, for example, 96%, the higher part is profit. Currently, the price of gold and silver is at the highest level in history, with a rough estimate of 500-1,000 yuan/ton of copper.

In summary, mines dare to pay zero processing fees, and smelters dare to accept zero processing fees. Apart from the mismatch between mine-smelting supply and demand, it is because by-products and recovery rate returns are at the best level in history. Assuming that the price of sulfuric acid plummets from 1,000 yuan/ton to 200 yuan/ton, spot TC will definitely rebound sharply.

Zero processing fees will accelerate the industry's “reverse internal circulation”

The China Nonferrous Metals Industry Association stated at the Cesco conference at the end of November that “zero or negative copper concentrate processing fees may seriously damage the interests of global copper smelters, including Chinese smelters. This situation challenges the long-standing global copper pricing benchmark.” The China Copper Raw Materials Joint Negotiating Group (CSPT) meeting at the end of November announced that due to the continued decline in copper concentrate processing fees, member companies will reduce their copper production capacity load by more than 10% in 2026. Zero processing fees have strong warning significance, and may prompt relevant departments to introduce “anti-internal circulation” measures for the copper smelting industry. The long-term pattern of the industry is expected to improve.

Sorting out large-scale copper smelting standards

China's copper smelters are world-leading in equipment, process level, and cost control, and the consumption of by-products is smooth, and their competitive advantage is prominent during the downturn in copper smelting; if production capacity control measures are introduced, the industry pattern is expected to improve. Even without considering policy factors, if the Panamanian copper mine, Grasberg copper mine, and the eastern region of Kakula can resume production smoothly in the second half of 2026, the tight supply of copper concentrate can also be alleviated.

Investment advice

China's copper smelters lead the world in process level and cost control, and the consumption of by-products is smooth, and their competitive advantage is prominent during the downturn in copper smelting; zero processing fees may lead to the introduction of capacity control measures, and the industry pattern is expected to improve. Related targets: Tongling Nonferrous Metals (000630.SZ), Jiangxi Copper (600362.SH), Yunnan Copper (000878.SZ).

Risk Alerts

Copper concentrate production disrupted expectations; copper smelting capacity expansion exceeded expectations; sulfuric acid prices fell.