Record copper prices would ordinarily signal a healthy industry. Instead, the metal’s midstream sector is under structural strain, exposing fault lines that neither high prices nor by-product windfalls can paper over indefinitely. With the IEA projecting a potential supply deficit of 30% by 2035, and smelter treatment and refining charges (TC/RCs) settling at an unprecedented USD 0 per tonne in January 2026, the copper market is navigating a paradox that has direct implications for global energy security, defence supply chains, and the electrification agenda.
When Smelter Fees Hit Zero, the Business Model Breaks
The TC/RC benchmark is the price smelters charge miners to process copper concentrate into refined metal. It is the financial engine of the midstream. When the annual benchmark, set through negotiations between Chile’s Antofagasta and major Chinese smelters, settled at zero dollars per tonne for 2026, it marked not just a record low but a structural inflection point. Spot TC/RCs have been negative since 2024, meaning some smelters are effectively paying for the right to process ore.
The cause is not a collapse in demand. It is an oversupply of smelting capacity driven almost entirely by China. Since 2005, China has accounted for over 90% of growth in global copper smelter output, lifting its market share from roughly 15% to approximately half of global refined copper supply by 2025. That expansion has significantly outpaced growth in available copper concentrate, creating a structurally imbalanced market where smelters compete aggressively for raw material, suppressing the fees they can charge.
The economics of custom smelters, those operating independently of mining operations and sourcing concentrate from the open market, are now precarious. Unlike integrated smelters tied directly to mining assets, custom smelters have no internal feedstock buffer. They absorb the full impact of falling TC/RCs with no offsetting mine-level revenue.
By-Product Revenues Are Masking a Deeper Vulnerability
For now, many smelters remain solvent, but not because of their core copper processing business. Gold and silver prices have recently reached record highs, and these by-products, recovered during copper smelting, have become the de facto profit centre for facilities equipped to maximise their recovery. Sulphuric acid revenues have also provided a cushion. Refined copper premiums, reflecting tight refined metal availability, have similarly hit record highs, providing additional margin support.
This by-product dependency has fundamentally altered the smelter revenue structure, shifting it away from TC/RCs, which historically anchored profitability, toward markets that are inherently more volatile. Precious metal prices can correct sharply. Acid markets are regional and susceptible to industrial demand swings. The structural reliance on these ancillary revenue streams is a short-term patch over a longer-term problem.
Chinese smelters are better positioned to absorb this environment. They benefit from lower labour and construction costs, greater economies of scale, newer and more energy-efficient facilities, and, in many cases, state ownership that decouples operational decisions from commercial profitability. Some Chinese facilities operate against physical output targets rather than financial ones. The China Non-ferrous Metals Industry Association has acknowledged low TC/RCs as one of the sector’s most pressing challenges and has called for capacity caps analogous to those introduced in aluminium, though China’s top smelters have so far committed only to cutting production by over 10% in 2026, while the government has halted around 2 million tonnes of planned new smelting capacity. These measures fall short of meaningfully rebalancing the market.
The Concentration Risk Is No Longer Theoretical
The copper market has entered a trajectory that closely resembles what unfolded in nickel. In that market, a surge of Indonesian supply, predominantly developed through Chinese capital, drove sustained oversupply, rendered projects elsewhere uneconomic, and triggered closures and suspensions that rapidly concentrated market power. The pattern now visible in copper smelting follows the same logic: oversupply from a dominant player drives prices to levels that make production elsewhere unviable, resulting in curtailment and consolidation.
China already sits at the top of the refining hierarchy for 19 out of 20 strategic minerals critical to energy, defence, transport, aerospace, semiconductors, and AI, with an average market share of around 70%. Copper, which underpins all electrical technologies, is approaching that same threshold in the midstream. The risks of that concentration became concrete in 2025, when China’s rare earth export controls in April caused temporary production halts across the global automotive sector. The copper market is significantly larger and more deeply embedded in industrial infrastructure than rare earths, meaning comparable disruptions in copper supply chains would carry far greater economic consequences.
The Pipeline Problem Compounds Everything
Supply-side constraints are not merely a midstream phenomenon. The mined copper supply outlook is structurally challenged. The average global grade of copper mines has declined 40% since 1991. Capital intensity for brownfield expansions has risen 65% since 2020, approaching levels historically associated with greenfield projects. New resource discovery rates have collapsed: of all copper deposits found in the last 35 years, only 5% were discovered in the past decade. Lead times from discovery to production run approximately 17 years, and major projects have experienced repeated delays and cost overruns.
Most new concentrate supply growth in the pipeline is linked to integrated or semi-integrated smelters, meaning it will not flow freely into the custom concentrate market. Freely available concentrate, the feedstock that custom smelters depend on, is already declining. A structural recovery in TC/RCs would require either a major surge in that freely tradable concentrate or a meaningful contraction in global smelter capacity. Neither is imminent.
Structural Responses Are Beginning to Emerge, But Remain Insufficient
Some custom smelters have begun adapting. Several have pivoted toward expanding recycling operations, since scrap copper is not subject to TC/RC dynamics and higher copper prices improve the economics of secondary production. Others are exploring alternative commercial structures: long-term contracts, cost-linked or index-based pricing, prepayment deals to secure multi-year concentrate supplies, and miner-smelter joint ventures or equity partnerships that create more integrated supply arrangements outside the TC/RC framework.
Smelters with strategic domestic importance, such as Aurubis in Germany, which combines custom smelting with a large downstream fabrication business, occupy a more defensible position. Proximity to domestic demand centres, integration into broader industrial supply chains, and the ability to set regional copper premiums provide partial insulation from the most severe TC/RC pressure. Aurubis and similar facilities serve strategic sectors such as power infrastructure, automotive manufacturing, and construction, making them candidates for policy support during downturns.
The more exposed operators are custom smelters that are net cathode exporters. These facilities must compete for high-quality concentrate and then sell refined copper into markets where domestic demand is insufficient to absorb their output. They cannot differentiate on local premiums or strategic national importance, and they lack integrated mining revenue to cushion processing losses.
The TC/RC Framework Itself Requires Examination
The benchmark TC/RC system was designed for a market characterised by diverse participants across the supply chain. That structure is eroding. The benchmark’s declining relevance is visible in the growing proportion of contracts being settled on spot terms or through customised arrangements, and in the increasing volume of prepayment deals struck independently of TC/RC negotiations entirely.
Whether the current framework remains fit for purpose in a market trending toward smelter overcapacity and geographic concentration is an open question, but one that the industry and policymakers will be forced to confront. Regional differentiation in TC/RCs, which has historically been minimal, may become necessary as cost structures diverge more sharply between Chinese facilities and those operating elsewhere.
The IEA has called for a structured dialogue among policymakers, miners, smelters, and fabricators to address the emerging fragility. For governments whose industrial and defence sectors depend on a reliable copper supply, the incentive to engage is significant. Copper is not a peripheral commodity. It is the material substrate of electrification, and the midstream’s growing vulnerability is an exposure that no energy transition strategy can afford to ignore.
