(Bloomberg) -- China’s second-largest copper smelter said it began halting capacity last week at its main production hub in the city of Tongling after the local government ordered the curbs as part of a national plan to ease pollution over the winter months.
Tongling Nonferrous Metals Group Co., based in Anhui province, is idling 20 to 30 percent of its smelting capacity, from an annual total of 800,000 metric tons, Wang Guojian, vice commercial director, said by phone Thursday. There’s no timetable for how long the cuts may last, he said.
While other producing regions such as Shandong and Jiangxi aren’t affected, if the environmental curbs spread it should support Chinese smelters in their annual negotiations over processing fees with overseas miners, Wang said. Those talks were suspended last week without resolution on what price miners will pay to get their copper refined in 2018. China is the biggest producer and consumer of refined copper and relies on some of the world’s biggest miners for its raw material.
“If the curbs are enacted in more regions, or nationwide, that will affect demand for copper concentrate,” said Wang, adding that the company has yet to resume the negotiations.
Tongling’s willingness to halt capacity shows just how much pressure is generated by the negotiations, Ji Xianfei, an analyst with Guotai Junan Futures Ltd., said by phone from Shanghai, “It’s also really hard to say how much, and how long the cuts will last,” Ji said. “The battle is intense during the annual talks.”
Even before the deadlock, the negotiations were taking longer than in previous years, Ivan Arriagada, chief executive officer of Chilean miner Antofagasta (LON:ANTO) Plc, said in an interview last week.
While miners contend that ore is in short supply, which should spur a drop in fees, China’s smelters say they are being forced to upgrade facilities to comply with environmental rules, and charges should reflect their higher costs.
Copper rose as much 1.1 percent to $6,620 a ton on the London Metal Exchange and traded at $6,589 by 1:59 p.m. in London. The metal closed at a three-year high of $7,134.50 in October, but has since retreated due to worries over slowing growth in China.
Anhui province’s government issued its order asking polluting industries such as steel, cement, and nonferrous metals to cut capacity by more than 30 percent this winter, a local newspaper reported last month.
(Updates prices in eighth paragraph.)
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