Chinese copper smelters are increasingly turning to scrap metal as a feedstock, as the availability of copper concentrate tightens and processing charges drop further into negative territory. This shift could have significant implications for the global copper market and for mining companies that produce copper as a by-product, such as Platinum Group Metals Ltd. (NYSE American: PLG) (TSX: PTM).
The move to scrap comes as smelters face a shortage of copper concentrate, the raw material traditionally used in copper production. With limited concentrate available, the fees smelters charge to process concentrate for miners—known as treatment and refining charges (TC/RCs)—have plummeted. In recent months, these charges have turned negative, meaning smelters are effectively paying miners to take their concentrate, a rare and telling sign of supply scarcity.
Negative processing charges indicate that smelters are desperate for feedstock to keep their operations running, but they are also a signal of the broader supply-demand imbalance in the copper market. The shortage of concentrate is partly due to disruptions at major mines, as well as increasing demand from Chinese smelters, which have expanded capacity in recent years.
By turning to scrap, Chinese smelters are seeking alternative sources of raw material to maintain production levels. Scrap copper, also known as secondary copper, can be processed into refined copper through a different process that does not require concentrate. This helps smelters partially offset the lack of concentrate, but scrap supply is also limited and may not fully compensate.
For mining companies like Platinum Group Metals, which produce copper as a by-product of their primary metals (in this case, platinum group metals), the tightening concentrate market could be beneficial. When concentrate is scarce, the value of the copper contained in their concentrate increases, as smelters are willing to pay more to secure supply. This could lead to higher revenues from by-product credits, which offset production costs and improve overall project economics.
Platinum Group Metals, a company focused on platinum and palladium, could see its copper by-product revenues rise as a result of the current market dynamics. The company’s operations, such as the Waterberg project in South Africa, are expected to produce copper as a by-product. With copper prices already elevated and concentrate supply tight, the potential for additional revenue from copper could enhance the project’s viability.
The shift to scrap by Chinese smelters also has broader implications for the copper market. It could lead to increased demand for scrap, potentially raising scrap prices and encouraging more recycling. However, the overall supply of copper remains constrained, which could support copper prices in the long term. For investors, this trend underscores the importance of copper as a strategic metal, especially in the context of the global energy transition, which requires significant copper for electrification and renewable energy infrastructure.
As the situation evolves, market participants will be watching closely to see how long the concentrate shortage lasts and whether scrap can fill the gap. The negative processing charges are a clear indicator of stress in the supply chain, and the response by Chinese smelters to use scrap is a pragmatic adaptation that may have lasting effects on the industry.
