Copper Industry Faces Constraints in China
The Chinese government has unveiled a new policy to curb the uncontrolled expansion of copper smelters, aiming to address issues of overcapacity and unsustainable business practices.
Background
China's copper industry has been plagued by excessive capacity, leading to intense competition and depressed profitability for many smelters. This situation has contributed to the country's deflationary environment and trade tensions with the United States over steel exports.
Government Intervention
Eleven ministries have issued an order restricting capacity expansion based on the availability of ore supply. The policy is intended to encourage smelters to secure sufficient resources to meet their operational needs.
Implementation Details
The order is applied "in principle," leaving room for flexibility. Unlike other industries, there is no blanket ceiling on capacity. However, smelters are required to find their own raw materials, either through domestic sources or overseas exploration.
Implications
The new policy could pause rather than stop copper smelter development. It may lead to increased prices for copper concentrate as smelters compete for resources. The government's focus on exploration aims to increase China's domestic copper production.
Exceptional Treatment for Copper
The government recognizes the importance of copper in the energy transition and economic development. Therefore, the policy includes protections for the industry, allowing for continued expansion in sectors with high demand, such as electric vehicles.